India

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India’s recent decision to impose an additional import tax on a number of stainless steel flat products from China for five years has generally been welcomed by the Indian steel industry and trade bodies.

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The tax, said the Government of India, was to curb the influx of cheaper foreign imports.

A countervailing duty of 18.95% has been imposed on some hot-rolled and cold-rolled stainless steel flat products. This is aimed at helping local steelmakers benefit when there is a surge in imports, the government said.

A statement by the government said Chinese imports “were distorting the domestic market, which was under huge stress and led to financial stress in the industry.”

In the past, too, India has imposed a slew of anti-dumping duties on imports of steel and stainless steel products from China, Japan and South Korea.

According to a Reuters report, the U.S. Department of Commerce also said it would be looking into possible dumping and subsidization of stainless steel flanges from China and India.

Steel producers in India have welcomed the move.

According to Jindal Stainless Vice-Chairman Abhyuday Jindal, the decision will encourage production of the metal within the country and will provide some relief to the domestic industry.

India’s apex stainless steel industry body, the Indian Stainless Steel Development Association (ISSDA), has also welcomed the imposition of countervailing duty, President KK Pahuja said.

Due to the subsidized imports from China, the domestic players were facing huge losses. Industry experts have claimed several MSME segment businesses were forced to shut down due to subsidized imports from China. The imposition of a countervailing duty would help revive the industry, regain lost ground and create jobs, the Pahuja added.

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The CVD investigation was initiated on April 12, 2016, by the Directorate General of Anti-Dumping and Allied Duties (DGAD) in response to a surge in subsidized imports of stainless steel flat products from China.

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Metals and mining conglomerate Vedanta Resources seems bullish on India.

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Chairman Anil Agarwal recently announced his group was actively thinking of investing about U.S. $9 billion (around Rs 50,000 crore) to expand its business in the country.

Why? In an interview to moneycontrol.com, he said “this was the best time to invest in India,” proceeding to list out concrete reasons.

The Indian government’s reforms were one of them. Agarwal said bankruptcy law and Goods and Services Tax (GST) would help improve the business environment and act as a magnet for global investors.

Vedanta is a “biggie” in India’s zinc, aluminum and refined copper sectors, with market shares of 72%, 40% and 35%, respectively. It’s also one of India’s largest private sector iron ore exporters and it’s the operator of 26 percent of India’s crude oil production via Cairn India.

Agarwal’s recent announcement of his India plans advanced Vedanta Ltd’s shares by 1% when the markets opened last Monday.

In another interview, Agarwal said they were looking at investing U.S. $8-9 billion to expand capacity in oil and gas, iron ore, aluminum, and zinc by nearly 50 percent over the next few years. This will create 40,000 direct and indirect jobs.

Vedanta may be interested in picking up some of the “stressed steel assets” in India. Just last week, MetalMiner reported that one of India’s largest steelmakers, Essar Steel, which is battling bankruptcy, has potential suitors lined up for its assets — though most are unwilling to come on record for the time being.

One hangup in Agarwal’s plan could be the “retrospective tax.” For some time now, Cairns India and the Indian government have been at loggerheads over this tax. As the name suggests, this was a back-dated tax levied on some international companies, including a claim for about $2 billion from Vodafone, the British telecommunications company, which the government lodged in 2012 for capital gains tax it said was due from Vodafone’s 2007 purchase of CK Hutchison’s Indian business.

Mr Agarwal’s company was forced to hand over $104 million in payments as part of the Cairn dispute after buying Cairns India in early 2017.

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Now, in an interview to Financial Times, Agarwal has criticized some of the ministers in Prime Minister Narendra Modi’s government over this retrospective tax, and asked the government to settle the issue once and for all.

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One of India’s largest steelmakers, Essar Steel, which is battling bankruptcy, has potential suitors lined up for its assets — though most are unwilling to come on record for the time being.

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Korean firm Posco and India’s largest steel company Tata Steel are reportedly thinking of bidding for Essar’s stressed assets. The latter was among a dozen large companies that India’s central bank, the Reserve Bank of India (RBI), had identified to be taken to bankruptcy courts to help clean up the banking system that is saddled with stressed loans.

According to reports, Essar Steel, with a capacity of 10 million tons per annum, had about $6 billion of debt in the 2015-16 fiscal year.

Days after the Essar Group had concluded the sale of its oil business to Russia’s Rosneft for U.S. $12.9 billion, the Ruia family-controlled conglomerate’s metal business, too, seems to have attracted suitors, news reports here said.

Tata Steel may be looking at Essar Steel to get itself a better position in western India.

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India’s aluminum production is expected to grow at a compound annual growth rate (CAGR) of 3.5% in the next 2-3 years to cater to a rise in domestic demand, according to a new report.

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CARE Ratings’ report titled “Aluminium Industry: The Silver Knight of the Economy,” said that what would propel this growth are the various initiatives taken up by the Indian government, and the ramping up of smelter capacities. Surplus stock will continue to be exported, owing to its low-cost advantage.

So what will drive the growth? According to CARE, the growth in consumption is likely to be driven by the growth in power transmission and the automobile sector. While the demand from the building and construction and consumer durable segment is likely to remain subdued, demand from the packaging sector is likely to support the domestic demand.

CARE has estimated the prices of LME aluminum to range around $1,800/ton to $2,000/ton in the short- to medium-terms.

India is among the lowest cost producers of aluminum in the world, owing to easy availability of raw materials and comparatively low labor costs. The growing demand for aluminum in the last decade, driven by India’s underlying growth story, has resulted in expansion of smelting capacities of the major domestic players.

With the addition of new aluminum capacities, India aims at not only satisfying domestic demand, but also playing a major role in the global aluminum market.

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Before we head into the weekend, let’s take a look back at the week that was.

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  • In case you missed it, our August MMI Report is out. Metals like copper and aluminum hit record highs, and nine of our 10 sub-indexes posted upward movement as a result of a strong July. Will that momentum continue? Check back next month for the September MMI report.
  • Many have predicted a decline for iron ore prices, but as our Stuart Burns wrote on Monday, reports of its demise have been greatly exaggerated. A weak U.S. dollar, combined with strong equities and global GDP, have helped keep iron ore performing well, not to mention Chinese steel and the wider metals market. Read through for Burns’ assessment of the iron ore market.
  • In India, a boom of bauxite production is expected, wrote our Sohrab Darabshaw. In fact, it is expected to more than double by 2021. How is that possible? One reason, Darabshaw writes, is “increased domestic demand for aluminium, which will largely be sourced from the quintupling of land under mining lease in the Odisha province (which has the bulk of India’s bauxite reserves).”
  • One commodity almost everyone is interested in is oil. On Tuesday, Burns wrote about the future of oil prices. But, since this is MetalMiner, after all, those prices also have an effect on metal markets.
  • Everyone loves a good M&A story, and Burns had one earlier this week on the ongoing talks between Indian steel giant Tata Steel and Germany’s ThyssenKrupp. Plus, he touches on ArcelorMittal’s takeover of Italy’s Ilva. Burns writes: “For the first time in years, steelmakers at least seem to have a plan and are actively pursuing it. Whether that plan is to the eventual benefit or detriment of consumers remains to be seen — but a healthier domestic steel industry must certainly be advantageous to all.”
  • How about zinc? Burns wrote about the metal’s rise to $3,000, and the reasons behind zinc’s price hitting its highest point since 2007.
  •  Last week was a busy one for the U.S. Department of Commerce, which handed down preliminary determinations in countervailing duty investigations for both Chinese aluminum and silicon coming from a trio of countries.
  • Back in India, steel exports are on the rise as the Indian government’s protectionist measures seem to be paying off for its domestic industry.
  • Lastly, representatives of the U.S., Canada and Mexico began talks on Wednesday regarding renegotiation of the North American Free Trade Agreement (NAFTA), the trade deal instituted in 1994. The U.S. is focused on, among other things, bringing down ballooning trade deficits with the two countries (particularly Mexico). The talks are scheduled to continue until Sunday, so check back for updates on the proceedings.

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India’s protectionist measures to safeguard its steel industry seem to be paying off.

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As reported consistently by AG Metal Miner, the Indian government, responding to the call of its steelmakers, had time and again imposed various forms of anti-dumping measures and fines to stop cheap imports of steel — especially from the world’s steel manufacturing leader, China.

Along with the U.S. and Brazil, India was said to be one of the world’s leading initiators of anti-dumping investigations, according to the World Trade Organization (WTO).

Well, now, all this has resulted in India’s steel exports doubling to 8.2 million tons and imports have been slashed by about one-third in 2016-17.

As per a report by the Press Trust of India (PTI), quoting from portions of the released Economic Survey, the rise in exports of steel could also wipe away the excess capacity built up in the steel sector. The mid-year survey by the government said steel imports had declined in 2016-17, while exports of steel had doubled.

Alloy imports dipped by 36.6% to 7.4 million tons in 2016- 17 against 11.7 million tons in the previous fiscal year. Exports doubled to 8.2 million tons last fiscal year, over 4.1 million tons in the corresponding year.

The news was welcomed by steel companies like Tata Steel. T.V. Narendran, managing director for Tata Steel India and South East Asia, told newsmen that steel demand in India was increasing, making it just right to make future investments. Stability was being witnessed in the steel sector globally, though it had faced some problem two years ago, Narendran told reporters.

Ironically, much of Indian steel joy stems from its traditional rival China, where there’s been a visible improvement in the economy — which meant much of its steel being produced was once again being used within the country. It was against the backdrop of China’s economic slowdown that the global steel industry had faced distress due to decline in global demand.

The Indian survey report said, in response to the dumping of cheap imports, the government in 2016 introduced a host of measures like raising Basic Customs Duty, imposition of Minimum Import Price (MIP) and anti-dumping duties in order to shield domestic producers. The government imposed the MIP for steel in February 2016 for a period of one year.

On April 12, 2016, India initiated countervailing duty investigation concerning imports of certain hot-rolled and cold-rolled stainless steel flat products originating in China.

According to the WTO, India’s share in total global steel exports increased from 1.1% in 2000 to 2.8% in 2016. During this period, China’s share in total steel exports rose from 3.7% in 2000 to 19.2% in 2016. Japan’s share in total steel exports in 2000 which was 12.2%, but fell to 9.1% in 2016.

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Meanwhile, the U.S. share in total steel imports was 17.0% in 2000, but has since come down to 12.1% in 2016.

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One of the top five regions in the world with the largest deposits of bauxite, India’s bauxite production is expected to increase from 22.08 million tons in 2016 to 49.4 million tons by 2021, according to new research.

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The BMI Research report says bauxite production is projected to hit 26.1 million tons this year, about 18% higher than 2016.

In the last two decades, India’s bauxite ore production has kept up with its aluminum output. As is the case with steel and other metals, bauxite production in the country, too, was estimated to go up in 2017 because of increasing domestic demand.

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There’s been a shift in one of India’s biggest steel company’s plans.

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Steel giant Tata Steel will now focus more on India, its home base, than on global markets.

Chairman Natarajan Chandrasekaran has said Tata Steel’s priorities will be to focus on the Indian market, achieving operational excellence, and delivering value-added and differentiated products to its customers.

He told shareholders in the company’s Annual Report for 2016-17 that steel demand in India was set to witness a “significant growth in the future,” considering the current stage of development of the country’s economy and its expected growth path in the next decade.

Protectionism and Political Uncertainty

The global steel industry continued to witness challenging times, though the performance of the industry has been better this fiscal year.

While most in this sector, including Tata Steel, are keenly aware of the slow growth in global steel pickup for the last several years, they are also too aware of the fact that only China and India, where infrastructure development is the fastest, are the two places on earth where steel will continue to be used at a faster rate than the rest of the world.

The global steel industry continues to face structural overcapacity, but we see recovery in developed economies, such as Europe, gradual improvement in demand in India and better industry conditions in China.

At the same time, risk of uncertainty was likely to remain at elevated levels due to structural issues such as geopolitical uncertainty, especially in the U.S. and U.K., and the rising trend of protectionism, Chandrasekaran said.

In March 2016, Tata Steel announced plans to sell its U.K. business, as the company battled to control its “deteriorating financial performance.” In February, the company inked a pact to sell its Specialty Steel business, which employs 1,700 people, to Liberty House Group for £100 million.

Tata Launches Graphene-Coated Stirrups Products

What’s more interesting is the fact that Tata Steel was working on the commercialization of superconductor graphene, an advanced material. The company has launched ready-made graphene-coated stirrups called Tiscon Superlinks+.

Explaining this, Peeyush Gupta, vice president of steel marketing and sales at Tata Steel, said when four columns are built, the support link was normally made of steel. However, the link normally starts rusting after a while. Tata Steel has changed that by coating it with graphene.

Tata has said Superlinks+ comes with enhanced corrosion resistance and better bonding strength than other stirrups in the market. Incidentally, Tata Steel has filed seven patent applications in this area of work. The company is said to be contemplating other areas where graphene can be used. For this, a graphene development cell has been set up at Jamshedpur to identify applications and establish new businesses. In addition, two advanced material research centers of excellence have been established.

According to other media reports, Tata planned to start manufacturing graphene, which can be used in filtration systems, batteries and smartphones. The company is also working on drones and hydrogen fuel cells.

Graphene is ultra-light, 200 times stronger than steel and yet highly flexible. It is a superb conductor and is also transparent. Graphene research is focused on applications in energy, membranes, composites and coatings, biomedical, sensors, and electronics.

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Tata was working on using graphene in highly targeted wearable technology products, including a smartwatch meant for yoga enthusiasts.

Sanjeev Gupta has been sometimes called a knight in shining armor, saving the workforce of distressed steel mills across Europe and Australia.

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Now, Liberty House Group — the Gupta-controlled metals and engineering empire — plans to enter the Indian market, and is looking at investing in the renewable energy, auto component, shipping,  engineering and infrastructure sectors.

If it happens, in a sense, life would have come a full circle for the Punjab born, U.K.-based Gupta.

In an interview with the Indian newspaper Live Mint, Gupta said the entry would probably be through the acquisition of distressed assets or direct investment.

Gupta hurried to add they were in no hurry to enter this market segment, though.

In mid-July, the steel tycoon bought the U.K. assets of Amtek Global Technologies Pte, a subsidiary of India’s debt-ridden Amtek Auto, for an undisclosed amount. It would save 550 jobs. The Liberty Group is also said to be actively looking at bidding for the ABG Shipyard Ltd and the India assets of Amtek Auto. Amtek and ABG Shipyard are two of the 12 large defaulters identified by the Reserve Bank of India for launch of early bankruptcy proceedings under the Insolvency and Bankruptcy Code (IBC).

These two acquisitions could be the stepping stone for Liberty House’s entry into India, though only time will tell.

“Give me your distressed and I shall retain their jobs” seems be the motto of Liberty House, though some experts and sector observers have started questioning the viability of its business plan.

After all, where other majors had failed, what magic formula does Liberty House have to turn around the same, loss-making businesses?

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India’s move to a Goods and Services Tax (GST) last month has been generally heralded as a good thing.

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Unifying tax codes across states and allowing the free movement of goods between states will speed up internal trade and simplify companies’ reporting — that is, if the government had resisted the temptation to meddle with multiple tax rates.

The introduction of the GST in India creates complexity out of simplicity. Whereas markets like the U.K. that have a similar VAT system have one main rate of 20%, with a reduced rate for home power of 5% and zero on a very limited range of goods like food and children’s clothes, India has five rates (0%, 5%, 12%, 18% and 28%), with many very similar products falling into a lower or higher bracket – encouraging distortions in the market as producers switch ingredients, product focus or labeling to try and circumvent higher bands.

Still, the benefits are expected to be significant even if reality doesn’t live up to expectation. The metals industry is predicting savings of 40-45% in the time taken to move goods as border tax points to collect state taxes and hence lengthy delays of up to 10 hours will become unnecessary.

For metals producers, it will come down to what rates apply to inputs and outputs for the industry — and there does appear to be some good news on that front.

Steel producers, at least, will face lower input tariffs, as raw materials like iron ore and coking coal will attract one of the lowest rates at 5%. Of course, like all GST systems, firms can either claim back what they pay to suppliers and collect for the Treasury what they raise — such that GST becomes net neutral for processors — but there remains a cash-flow implication. If producers are only paying out 5% but collecting 18%, it is beneficial for them from a cash-flow perspective.

Maybe not surprisingly, power costs are exempt from GST (that is not the case in other countries), but for an emerging economy and one with a large contingent of poor people, exempting energy costs from the taxation system has some logic.

A pre-GST Clean Energy Tax of Rs 400 per ton is not recoverable but was previously, so its exemption now represents a minor cost to steel producers that they will not be able to reclaim. Likewise, a state royalty of 15% on iron ore is another tax outside of GST, as are various Forest Development Fees and contributions to the District Mineral Foundation and National Mineral Exploration Trust, which are considered to in effect be taxes that steel producers cannot reclaim, according to the Indian Express.

Steel producers’ input costs for natural gas — a fuel source increasingly becoming the preferred choice for steel producers switching to intermediate sponge iron or hot briquetted iron — will face some impairments as a result of these taxes being unreclaimable (either partially or completely).

Like the old swings and roundabouts, there will be some opportunities to win and some that will lose, but in general the industry sees it as positive – not least because it will encourage the unregulated end of the market to join the mainstream and take part in the tax system.

For firms that are not operating within the tax system, there will be significant cost implications and no opportunity to reclaim.

More than anything, that is probably the underlying purpose of India’s GST: to bring all enterprises into the tax system, speeding up boarding crossings and eventually simplifying tax collection and transparency are welcome benefits.

But getting everyone to pay their fair share will, in the long run, be the biggest win.

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