Sohrab Darabshaw

The statistics on steel imports to India speak for themselves.

Steel imports went up 72% in the last fiscal year to 9.3 million metric tons, of which South Korea and Japan together sent 3.5 mmt. They’re still going up. In the first two months of this fiscal year, the situation got worse, with shipments from Japan at 111% and from South Korea 51%.

This September: SMU Steel Summit 2015

Fitch Ratings, for example, in a recent report, said it, too, did not expect the Indian government’s recent tariffs on the two free trade agreement partners to increase customs duties on steel imports would alleviate the pressure on Indian steel producers. The higher customs duties will likely result in only a marginal increase in the landed costs of imported steel products.

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What Indian steel companies are hoping is that, just like in the US, the Indian government starts thinking of imposing anti-dumping and safeguard measures. Contrary to their expectations, the government is said to be actively toying with the idea of signing a free trade agreement with the Philippines. It also extended a previous deal to supply high-grade ore to Japan and Korea.

Steel in Free Trade Agreements

Steel is one of the many commodities that make up an FTA. At the time of signing its FTAs with Japan and Korea, the global steel scenario was very different compared to the one seen today. It was flourishing and market demand for quality steel was high, both in India and abroad. Now, in 2015 though, the situation is downright bleak.

India represents a growing market, which will require copious amounts of steel for infrastructure and other sectors. So nations such as China, Japan and Korea are dumping inferior steel into the Indian market. The foreign steel is being bought and specified because of its attractive price range.

Many here feel that the FTAs that India signed with Japan and Korea are flawed. Under these agreements, duties paid on imported finished steel products from these countries were given a waiver of 5%. Import duties on goods imported from these two countries was 2.5% compared to the usual duty of 7.5%.

Then Vs. Now

While such FTAs may have worked before, experts are of the opinion that India’s deals with South Korea and Japan weighed heavily in the latter’s favor. The Indian steel ministry already highlighted these concerns to the government, which eventually came around to the view that steel should now be removed from the FTA list. Unfortunately that’s not going to happen any time soon.

Some steel leaders here have pointed to the recent passage of the Leveling the Playing Field Act. This legislation, they said, was designed to give American companies new ways to fight unfair trade practices. That’s the way the Indian government needs to go if it is to protect its own steel industry.

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

 

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First it was cheap steel imports from China that bothered India’s steel companies, now just-as-cheap imports from Japan and South Korea, two nations with whom India has a Free Trade Agreement (FTA), are causing the same type of consternation.

This September: SMU Steel Summit 2015

Earlier this month, as reported by MetalMiner, the Indian government imposed five-year anti-dumping duties ranging between $180 and $316 per metric ton for some industrial-grades of stainless steel imported from China, Malaysia and South Korea. The duty was obviously an attempt to try to halt surging steel imports.

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Structural steel from India could soon get more expensive in the US thanks to anti-dumping duties.

The Heavy Industries Minister in the Indian government has said there could be moves afoot to further raise tariffs on imported steel. The Minister said he would be taking the matter up with the Finance Ministry soon.

Meanwhile, Back in the USA…

While India grapples with its own skewed steel supply and demand issues, back in the US, some Indian steel companies find themselves on the receiving end of upcoming tariffs. A few weeks ago, the Commerce Dept. initiated investigations to determine whether to impose anti-dumping (AD) and countervailing duties (CVD) on import of corrosion-resistant steel products from India, China, Italy, Korea and Taiwan.

Not many players in India’s steel segment want to comment on the US development, blaming the economic slowdown almost everywhere around the world for the low prices.

Free Trade Agreements Making it Easier to Dump Steel?

But when to comes to protecting their own market, local steel firms are almost united in the belief that even if the Indian government was to increase import tariffs, it would not stop countries such as Japan and South Korea who have FTAs with India.

One of these players willing to go on record was Sajjan Jindal, Chairman of JSW Steel Ltd., who felt that both Japan and South Korea paid almost no duty when they sold steel in India.

He told news agency Reuters that almost 50% of steel coming into India was from the FTA countries and that almost all steel players felt the government would not really step up to the plate to impose additional import duties after it did so in June.

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PriceWaterhouseCoopers‘ Mine 2015 Report was good news for India, but cast a troubling picture of the overall global mining industry.

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Dry-fuel miner Coal India Ltd. (CIL) moved up from the 8th to the 6th slot on the list of the largest mining companies in the world in terms of market capital.

A second state-owned company, which was also the country’s top iron ore miner, National Mineral Development Corporation (NMDC), also improved its ranking by coming in 21st, up three spots over the previous year.

What is Mine 2015?

Mine 2015 analyzed the financial performance of the world’s top 40 mining companies by market capitalization. The report said market values continue to fall, overall, in spite of improvements reported in the financial results of all top 40 companies.

Depending on which way you read it, in 2014, a collective $156 billion was eroded (about 16%) of the top 40 companies’ combined market value, but then again, that was only half of the 2013 slide. The collective market capitalization came in at $791 billion in 2014, which was the range miners held a decade ago.

The report said the world’s largest miners had reduced spending but stepped up production. The industry was also helped by lower input costs and currency devaluation. PwC did note, however, that weak commodity prices due to low demand hammered down revenues.

The Iron Ore Drag

The report said the downturn was largely driven by iron ore miners, particularly diversified companies with large exposure to shifts in commodity prices.

Last year, iron ore was the hardest hit, with prices dropping by half because of a supply glut and a negative short-term demand outlook, the report said.

On the coal front, coal miners in the BRICS countries (Brazil, Russia, India, China, South Africa) saw their values increase 19% over the period, regaining almost half of the value they lost in 2013.

In Asia, more industry consolidation was expected between key resource players from India and China in order to stem production overcapacity, the report said.

Chinese Production Still Surging

The coal companies of China made significant gains in the ranking of the top 40 mining companies, with three appearing in the this year’s top twenty.

China Shenhua Energy Co. Ltd (Shenhua) topped the list, becoming the third most valuable mining company (based on market capitalization) after BHP Billiton and Rio Tinto Group. Shenhua moved up from fifth in 2013’s rankings.

Another company, China Coal Energy Co. climbed to 14th rank from 23rd in 2013, with a 30% increase in valuation, while Inner Mongolia Yitai Coal Co. jumped to 18th from 25th. Yanzhou Coal Mining Co. came in at 26th – up from 34th in 2013. Yanzhou also recorded a more than 30% increase in value over 2014.

US Miners Can’t Keep Pace

On the other hand, not many US coal-mining companies charted in Mine 2015. Consol Energy found itself at number 28. No other companies charted despite noted concern from US manufacturing execs about local resource supply.

Of the 40 companies, 15 miners saw their share values appreciate, while 25 witnessed a decline.

The average return on capital employed was largely below the minimum hurdle investment rate of 15 to 20% set by the companies themselves. Only 6 of the 40 passed the 15% benchmark: CIL (coal), OAO Norilsk Nickel (nickel), NMDC (iron ore), Randgold (gold), Shandong Gold (gold), and Newcrest (gold), according to the report.

Copper Still Stagnating

On the copper front, Mine 2015 noted that global copper production had gone up by only 2.8% last year, which was way below the 8.1% of 2013. PwC noted that the world’s largest copper producer, Chile, had faced problems increasing its production due to falling grades.

PwC’s general outlook for the global metals and mining market though remains dreary due to the continuance of a slower rate of economic growth, particularly in emerging markets, especially due to the cooling off of China’s growth rate.

In 2014, iron ore, coal and copper prices had fallen by 50%, 26% and 11%, respectively, according to the report.

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Indian steel, aluminum and copper companies are pinning their hopes on India’s defense sector to help increase sales.

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The government’s “Make in India” campaign, a broad sweep enveloping the entire manufacturing sector, and, as a result, the metals and mining sectors, is expected to boost local raw materials used in defense applications.

The government raised the threshold for foreign direct investment in defense to 49% and has done away with licensing requirements for most items. Several Indian companies such as Tata Steel, Reliance Industries, Mahindra, Larsen & Toubro and others have started identifying areas of defense production their products fit in. They have also started scouting around for foreign partnerships and technology transfers.

International Joint-Venture Partners

One such international player that has in the past shown active interest in this sector is Germany’s ThyssenKrupp AG. The company is reportedly pursuing two interests in the defense field – naval weapons, specifically submarines, and aerospace.

In a recent interview with the Business Standard, Michael Thiemann, CEO of the company’s India region revealed that ThyssenKrupp India Pvt. Ltd was looking to expand its business in not only these segments but was also interested in investing in “smart” cities.

Thiemann said his company was already in discussion with public sector and private shipyards on the submarine front. The CEO let on that his company was open to tying up with private Indian companies such as Larsen and Toubro Ltd. for defense projects.

Project 75

“Project 75,” a plan for the construction of six submarines for the Indian Navy has been in the pipeline for several years now, but with the Make In India campaign it has caught a second wind.

Going by media reports here, the Indian government is likely to shortlist shipyards for the project in about two months. Thiemann said Thyssenkrupp has the technology and expertise and is willing to collaborate with Indian companies, by offering design, engineering and implementation know how.

Thyssenkrupp’s Edge

ThyssenKrupp already makes mining equipment and cement in India. But specifically, where the defense sector is concerned, ThyssenKrupp, say analysts, may have an edge because one of its group companies, ThyssenKrupp Marine Systems (TKMS) has been a partnering with the Indian Navy for more than two decades. Some of the Indian Navy’s previous submarines were made in India under a technology-transfer agreement in which TKMS was involved.

ThyssenKrupp has already invested in a service center at Bengaluru in South India for material processing of aluminum and titanium used in the manufacture of aircraft. The current revenue size of India’s aerospace business is nothing to write home about, but it is expected to grow because of the decisions made by the government.

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India’s BJP-led government, more precisely its finance ministry, recently announced that it would impose, for a period of five years, anti-dumping duties ranging between $180 and $316 per metric ton for some industrial-grades of stainless steel imported from China, Malaysia and South Korea. The idea, obviously, is to stop the tide of surging steel imports.

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Subsidized imports, or “dumping,” of steel into a country by producers from other nations can be a vexing issue. Steelmakers from the US, India and Europe have been facing mounting pressure from cheap imports.

US Anti-Dumping Accusations

Earlier this month, for example, MetalMiner reported that six steelmakers with major US operations had filed a trade complaint seeking punitive tariffs for alleged unfair pricing of imported steel from China, India, Italy, South Korea and Taiwan.

The move by the Indian government came after persistent efforts by steel producers to place tariffs on the foreign products for nearly two years. The cheap imports, claimed the Indian steel industry, were damaging its business prospects.

India consumes about one million mt of industrial steel stainless steel, of which, around 40% is imported, largely from China.

Indian Tariffs

The anti-dumping tax obviously was welcomed by domestic steelmakers. N.C. Mathur, president of the Indian Stainless Steel Development Association (ISSDA) was quoted in a news report as saying the move was long overdue. According to Mathur, the duty has been imposed on hot-rolled flat products stainless steel with all its variants originating from China at $309 per mt, $316 per mt from Malaysia and from Korea at $180 per mt. He added the move would give a respite to the domestic industry.

The ISSDA also complained to the government about of abuse of the India–Malaysia comprehensive economic cooperation agreement (CECA). Stainless cold-rolled flat products from Malaysia are being imported to India through a preferential tariff benefit, the association had claimed in its statement. ISSDA demanded that the Ministry of International Trade and Industry, Malaysia, investigate the cold-rolled imports.

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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The imposition of anti-dumping duties by the Indian government should encourage US authorities who have been asked to enforce a similar move. The suit filed by six US companies concerns corrosion-resistant steel, a type of coated steel used in automobile and construction industries. The US has been witnessing an unprecedented flood of imports in the last one year or so.

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As reported by MetalMiner last month, the US steel industry is suffering because the imports hit a record 34% of market share, according to the American Iron and Steel Institute (AISI).

The US slapped duties on imports of steel used in the energy industry from South Korea and five other countries last year but, evidently, those tariffs did not have the desired effect. The AISI in its press briefing last month, asked the US Government to first enforce existing trade laws which would be an immense help to the steel industry.

In India, steel imports had increased to 0.91 million metric tons this May, an increase of 58% as compared to the same month’s figure last year. As compared to April 2015, the import rate was up by about 20 mt, according to a report by the Ministry of Steel.

Many analysts said the Indian stainless steel industry started resembling a sick industry, as cheap imports were leading to a situation of under-utilization of installed capacities. The local industry hopes the anti-dumping duties will send out a clear signal to those sending in cheap imports, and lead to a resurgence in India’s steel sector.

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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Indian exports of aluminum have been on the rise for some time now, since local use has fallen because of the slow economy prior to the election of the new Modi government last May.

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Aluminum from Hindalco’s Mahan unit in Madhya Pradesh province is being shipped to Japan and South Korea, the US, and some African nations, too. A surge in demand for aluminum by the automobile industry and for use in can sheets were said to be the main drivers of the exports.

Strong Export Demand

India was already a net exporter of aluminum even before this surge happened.

India has a smelting capacity of over 36 million metric tons. Last year, its manufacturers produced about 28 million mt of the metal, while this year, analysts say, the figure could go even higher. However, with Chinese imports are affecting domestic consumption. The question on everyone’s mind is – who’s buying?

New capacity is being added in the face of slow growth in domestic demand. Chinese producers are simply undercutting local prices.

Chinese Imports Not Stopping Production

Some Indian aluminum producers remain undaunted by the imports. One such optimistic person is Debu Bhattacharya, managing director, Hindalco, who told the Hindustan Times recently that the phenomenon of Chinese goods coming into the Indian market would be “short-lived.” He said aluminum’s wide applications would ensure a strong outlook for the metal in the coming months.

Hindalco is one of India’s largest aluminum producers, and has posted aluminum sales growth of 14% on the fiscal year that ended in March 2015 due to higher production at its two new smelters — Mahan Aluminum and Aditya Aluminum.

Independent research agency CRU, too, seems to be on the side of Indian producers. It said in a recent forecast that aluminum production would rise throughout this year despite the announced closure of AlcoaBHP Billiton‘s Sao Luis plant in Brazil. The global production estimate for Indian aluminum is high, betting on the two Hindalco smelters and Balco’s Korba all seeing production rise this year.

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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Indian aluminum is flying through some turbulence right now as neighbor China tries to push some of its surplus aluminum into India. At the same time, for some Indian manufacturers of the metal, the Chinese imports are no deterrence to capacity expansion.

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National Aluminium Company (NALCO) is a case in point. Late last week, its board approved a major capacity expansion plan to set up a one million-metric-ton alumina refinery in the Odisha province for about $860 million. NALCO plans to use bauxite from its captive mine in the same province for this project. Executives there say they anticipate a spurt in demand because of the “Make in India” campaign, hence the move.

NALCO’s New Park

NALCO has a committed client, as well. 50,000 mt of aluminum metal to be supplied to Angul Aluminium Park, a joint venture between NALCO and the Industrial Development Corporation of Odisha.

Elsewhere, Sesa Sterlite, a Vedanta Group company, too, contemplates ramping up its aluminum capacity at its Jharsugda plant, again in Odisha. CEO Tom Albanese went on record saying his company was actively thinking of stepping up aluminum production.

For now, Sesa operates the plant at about 25% of installed capacity. What stands in the way is limited electricity supply and s raw materiadl crunch (bauxite), both of which Sesa claims to be working on.

New Hindalco Capacity

Another aluminum major, Hindalco, is in the process of adding 720,000 mt of smelting capacity since April 2013, trying to step into the gaps left by plants shuttered in North America, Australia and Europe.

In fact, Indian exports of aluminum have been on the rise for some time now, since local use had gone down because of the economy grinding to a standstill until the election of the new government in May last.

Aluminum from Hindalco’s Mahan unit in Madhya Pradesh province is being shipped to countries such as Japan and South Korea, the US, and some African nations. A surge in demand for aluminum especially by the automobile industry and for use in cans was the driver, benefiting Hindalco and others.

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It was barely two years ago that major steel multinationals, ArcelorMittal and the South Korean giant POSCO had announced they were pulling their multibillion dollar project investments out of India. Some of these had been pending for a decade or so for such varied reasons as lack of land and government permissions.

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Now, ArcelorMittal is back, like that famous line from Arnold Swarznegger in “The Terminator.” Different time, different government, fresh hope.

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Most of the major steel multinationals have set aside formidable capital expenditures for the long run in India, yet, for the short-term, have reported a dip in performance. Tata Steel, for example, while announcing its quarterly results (ended March 2015) recently posted a net loss, blaming Indian and European weak steel markets, and recognition of impairment in the value of its international assets for it.

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JSW Steel Ltd., India’s largest domestic steelmaker by capacity, had reported a steep 87% year-on-year decline in consolidated net profit for the quarter ended March 31, 2015. The fall in its profitability, it’s been said, was due to unfavorable conditions in the Indian steel market, compounded by the dumping of excess steel from countries such as China, Japan and South Korea.

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