India

According to a report, crude-steel output in China dropped 1.3% to 270.07 million metric tons in the first four months of 2015 as compared to the same period in 2014. The World Steel Association has forecast that China will end up using far less steel this year and maybe even the next. Which again means more supply and far less demand.

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The report quoted Alan Chirgwin, BHP Billiton iron ore marketing vice president, as saying steel supply was expected to rise by about 110 million metric tons this year, exceeding demand growth by around 40 mmt.

Yet this has not fazed Rio Tinto Group, for example, which recently announced it would continue with its plan to produce iron ore at full capacity despite the fall in prices. While BHP and Brazil’s Vale SA have, for now, stepped on the brakes vis-à-vis their medium-term plans, team Rio, on the other hand, thinks reducing production costs will help it hang on to its lead…and profits.

Betting on a Comeback

Rio Tinto sees China coming back with renewed vigor and driving global iron ore demand through 2030.

Where does that leave India? So far as iron ore or even steel consumption is concerned, China is miles ahead of India, even in the fatigued condition it finds itself today. India, as reported by MetalMiner, drew a blank for about two years due to a court-imposed ban on ore mining, which left its steel companies at the mercy of imports, something that they continue to rely on even today.

That had also affected its iron ore exports, especially from the ore-rich provinces of Goa and Odisha. India’s iron ore imports went up dramatically to a record 6.76 million tons in the first 7 months of the 2014-15 fiscal year. Once, the country was the third-largest supplier of iron ore to the world, but, because of the export duty and a national mining ban, it had turned into an importer.

Analysts predict India was likely to remain a net importer of iron ore in 2015-16 as well, no thanks to the continued drop in falling international rates. The only silver lining, claimed analysts, could be that due to the resumption in the domestic production of iron ore, the quantity of imports may not be as high as the last fiscal year.

Captive Market

India’s steel companies do not have captive mines, so they have to get their average 95 mmt a year of iron ore from elsewhere. With international price of ore hovering today at about $50 per mt for high-grade ore, it is too attractive a deal for Indian steel mills to be passed on. As reference points, last year, iron ore imports happened when rates had touched $90 per mt.

In all this, Australia, a country that sells about 80% of its ore to China, sits in a happy position. While it hopes that the recent cuts in interest rates will revive the Chinese economy, and thus its demand for iron ore and coking coke, it is also looking increasingly to India to pick up its stock. Last year, for example, as reported by MetalMiner Australia had approved Adani Group’s approximate $15.5-billion (AUS $16.5 billion) Carmichael coal project in Queensland that could yield up to 60 million mt of coal per year. That was just the beginning. For the Aussies, if the dragon’s appetite for iron ore and coking coal is satiated, the hungry tiger is always lurking in the background.

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When the Tiger and the Dragon dine together the world sits up and takes note.

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Signing business agreements worth $22 billion is a big deal so Indian Prime Minister Narendra Modi’s recent visit to China made big, bold headlines here. Some of India’s old, and some not so old (Adani, Bhusan Power and Steel), players in the steel and power sectors, were signatories to the 26 deals.

Steel and Energy Deals

The notable contracts included the one between India’s IL&FS Energy Development Co. and China Huaneng Group for a 4,000-megawatt thermal power project, and India’s Bhushan Power and Steel sealing a pact with China National Technical Import and Export Corporation for an integrated steel project in Indian province of Gujarat.

So here were two Asian, nee global, giants, breaking bread and talking business at the same table, sending analysts scurrying to their laptops to chalk out spreadsheets and draw pie charts in an effort to understand the impact of all this in the long term.

While business leaders of both nations, including Alibaba Group Chairman Jack Ma, spoke of long-term interests, such talk brought the arclight swinging back to the present and short-term situation currently prevailing in the Asian region, especially in iron ore and coking coke, two crucial ingredients in making steel.

There’s no doubt in anyone’s mind that steel is the mainstay of Asia’s infrastructure, a fact that has had iron ore and coal miners — and even steel majors in China, India and as so far as Australia — jockeying for a major piece of new market share. With demand from Europe and the US lacking, suppliers in all three countries are walking a thinly veiled tight rope to ensure their survival.

Wither Demand

Once a destination of hope, the Chinese dragon, for now, has lost some of its hunger. Some say next-door neighbor India is where one can find fresh action. The jury’s honestly still out on that one, though. But the slowdown in China’s economy means less need for steel, in turn, lowering the demand for ore and coking coal. Leaving miners re-tweaking their business plans.

Last year, for example, the Rio Tinto Group, BHP Billiton Ltd. in Australia, and Vale SA of Brazil, to stem the tide, had stepped up low-cost output to pump up volumes, leading to a glut. Now, everybody’s mantra seems to be – cut production costs faster than the falling prices.

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According to a recent report from the Freedonia Group, worldwide demand for copper is expected to advance 4.7% every year to 37.2 million metric tons in 2019. It also says the Asia-Pacific region is expected to see the fastest annual gains, led by increased output in China and India.

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Electrolytic refining of primary copper will be the primary method of production in these countries, but recycled scrap will account for a larger share of total refined copper output.

Construction Spending in India, US

Outside the AP region, the Freedonia report says advances in construction spending would also fuel copper demand in North America, particularly in the US, where early signs of building construction activity significantly increasing exist. This is followed by Western Europe which could see a “moderate increase” in copper demand since construction and manufacturing output there is expected to climb at a below average speed.

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Around the world, copper producers have started looking to India as the provider of relief in an otherwise somewhat bleak copper market.

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The long-term forecast issued recently by the US-based research firm, The Freedonia Group, predicts that India will register the fastest gains of any major copper metal market through 2019.

Strong Housing Demand

Demand in China, the biggest consumer of copper, has started to weaken because of a downturn in its economy. India, on the other hand, has an industry-friendly government in the saddle that’s willing to try investment-friendly policies and that’s, so far, driving driving up the local economy.

The Modi administration’s openness to trade is one of the favorable reasons cited by the Freedonia paper. Another reason is that a strong increase in India’s building construction, driven in part by an expanding urban population and government investment, is expected to boost copper consumption here.

Worldwide demand for copper, says the report, is expected to advance 4.7% every year to 37.2 million metric tons in 2019. It also says the Asia-Pacific region is expected to see the fastest annual gains, led by increased output in China and India. Electrolytic refining of primary copper will be the primary method of production in these countries, but recycled scrap will account for a larger share of refined copper output.

US Construction is Next Best Hope

Outside the AP region, the Freedonia report says advances in construction spending would also fuel copper demand in North America, particularly in the US, where early signs of building construction activity significantly increasing are being recorded. This is followed by Western Europe which could see a “moderate increase” in copper demand since construction and manufacturing output there is expected to climb at a below average speed.

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While India leads the world in Direct-Reduced Iron production, the domestic industry has been facing an uphill production battle for the last four years.

Why Manufacturers Need to Ditch Purchase Price Variance

India’s DRI sector is hoping for help from the government and clarity in the overall steel policy to see it through, what many have dubbed, its most critical phase ever.

Demand DRIs Up

What is worrisome is that the falling demand for steel, especially construction steel globally, could further, negatively impact the sector. Some are quick to note that India’s DRI units need not worry much on this front as the market in India has remained insulated from global trends owing to steadily increasing domestic steel consumption.

Two other risks facing the sector are imported scrap being used by steel companies in India, DRI is an excellent substitute for scrap in electric arc furnaces, and the reliance by medium-sized DRI producers on inferior technology. That means technological limitations stop the producers from exploiting inferior grades of iron ore and coal.

Further, the limited availability of coking coal only motivates steel production in the country through a combination of DRI and blast furnace. What has added to the misery is the recent round of coal auctions held by the federal government.

Unable to Bid in Coal Auction

DRI companies were unable to participate in the auction, and a hitherto discounted source of fuel was lost, pushing the cost of DRI production by an estimated 40%, some have said. The DRI segment has brought this to the government’s attention.

While many steel companies prefer to use DRI instead of scrap, the slowdown in the global steel industry has seen some amount of the steel melting scrap being imported into India because of lower import duties. What makes steel plants happy in such cases, besides the cheap duty, is the fact that the imported scrap percentage works out to be higher, which eventually negates the cost of imported scrap.

To many analysts, the DRI sector in India is poised on the cusp of a turnaround, but only if there is adequate government backing as well as support from domestic steel companies. Even then, it could easily take four years for the industry to come back to an even keel and ramp up production.

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According to the latest Short Range Outlook (SRO) report released by the World Steel Association for 2015-2016, steel demand was forecast to grow by just about 0.5% to 1.544 million metric tons in 2015. The next year could be better with a forecast of 1.4% to reach 1,565 mmt. Last year, incidentally, steel use grew by 0.6% in 2014.

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The economic slowdown in China is leading to lesser uptake of steel and that was was one of the major reasons for the sluggish growth. This was expected to be partly only partially offset by a measure of growth in developing economies such as India, Indonesia and Vietnam.

The Dragon Gives Way to the Tiger

Clearly, in the next two years, so far as steel is concerned, one emerging superpower will give way to another neighboring one. India’s steel consumption growth was on its way to register a new high this year as well as the next, at 6.2% and 7.3%, respectively, while other high-consuming nations besides China, including the US and Japan, are expected to see a decline.

India, as per WSA data, was the world’s third-largest steel producer with a production of 14.6 mmt in the first quarter of 2015. In this period, India’s production grew by 9.4% compared with the first three months last year. As reported by MetalMiner, it was in February this year that India had passed the US to become the world’s third-largest steel producer, after China and Japan.

Can India Offset the Losses?

The world’s steel sector hopes India can power it through this downturn. The country’s per capita consumption is still low, at about 60 kg opposed to the world average of 220 kg. With the government’s Make In India (manufacturing) plan slowly grinding into motion, it is now hoped that this would lead to an increase in steel consumption.

So, is the China steel story over? It’s affirmative, at least for the short-term. The economic deceleration there, following low investment growth since 2008, was expected to adversely impact its steel growth, and it has.

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It is one of those delicious ironies of life that India, the world’s largest consumer of gold, has very little to show when it comes to actually mining the yellow metal.

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That’s poor form because India sits on very large resources of gold, revealed by several geological studies in the past. One such study pegged India’s primary gold resources at about 491 metric tons. Despite its 6,000-year mining history, the country mines just around a pitiful 25 mt of gold annually.

Imports Flourishing

India is one of the biggest importers of gold, despite a punitive 10% import tax. In the financial year ended March 31, gold imports had touched 900 mt, up 36% from a year ago.

Perhaps keeping all this in mind, and the fact that gold mining could mean earning some big bucks, Western Australia recently expressed interest in developing gold mines in India, as part of the bilateral cooperation in minerals and energy sectors between the two nations.

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India’s dependence on thermal coke from abroad is beginning to raise concern in international circles, though some exporting countries are happy to have the business.

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India sits on mountains of thermal coke, yet mainly due to bureaucracy, it has to depend on imports.

The day, it seems, is not far off when India will topple China as the World’s number one importer, if analysts were to be believed.

Coal, Coal, Everywhere But Nary a Chunk to Mine

The situation is, indeed, grim. It has made Indian Power Minister Piyush Goyal remark at a public platform that it (importing thermal coke) is shameful. The minister told an audience after inaugurating a power project recently near Nagpur in central India that the government plans to almost double the government coal production by 2019-20. He added that importing coking coal, used for making steel, may be a necessity but thermal coal is at a surplus in the country, yet India is still being forced to import it. A Ministry of Coal report estimated coal reserves at about 300 billion metric tons, of which 125 billion mt were in the “proved” category.

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Speaking at the agreement signing ceremony featuring India’s seven steel majors in the creation of the new Steel Research and Technology Mission (SRTMI), Indian Steel Minister Narendra Singh Tomar said the joint initiative of steel industry and the government would also help the steel industry to play a major role in creating employment.

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This new industry-led initiative to promote collaborative research programs in India’s steel sector aims to increase investment in research and development in the steel sector from its present level of 0.2-0.3% of turnover progressively towards the international benchmark of 1-2% of turnover.

Public-Private Partnership

The initial approximately $32 million (about Rs 200 crore) investment for SRTMI will come in equal contribution from the Steel Development Fund of the ministry and the participating companies: Steel Authority of India Ltd. (SAIL), Tata Steel, JSW Steel, Jindal Steel and Power Ltd., Rashtriya Ispat Nigam Ltd., the National Mine Development Corporation and MECON Ltd.

SRTMI, as conceptualized by a high-level government task force, will carry out research and development in priority areas of Indian national importance covering best usage of available raw materials and conservation of natural resources, optimum energy conservation coupled with minimum emissions, innovation and in-house development of design, engineering and manufacturing facilities of key steel plant equipment.

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While India’s recent growth has helped propel sales and exports of steel, the federal government here wants to maximize returns by creating a favorable atmosphere for research and development.

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As many as seven steel majors joined hands with the Ministry of Steel on Wednesday to set up a Steel Research and Technology Mission (SRTMI) in the Indian capital of New Delhi. The Steel Authority of India Ltd. (SAIL), Tata Steel, JSW Steel, Jindal Steel and Power Ltd., Rashtriya Ispat Nigam Ltd., the National Mine Development Corporation and MECON Ltd. are the first to join the project that many analysts say marks the start of a new chapter in steel research and development in India.

New Legislation

The government is considering introducing a bill in Parliament in the next session for the creation of an educational institute under the Ministry of Steel, on the pattern of India’s famous Indian Institutes of Technology, where students are able to formally learn and undertake research programs on steel.

The institute may offer graduate, post-graduate, doctoral and research programs. This is line with the recommendations of a ministerial committee instituted in 2014 that recommended such an institute to ensure a stream of knowledge workers for the domestic steel industry.

The planned outcome of these efforts goes beyond the quality of finished steel, too. The initiative is being taken, also, to find innovative uses for steel and create entire new fields of employment for India’s youth.

Investment in Research

Speaking at the signing ceremony involving the seven steel majors in SRTMI, Steel Minister Narendra Singh Tomar said the joint initiative of the steel industry and the government would also help it play a major role in new employment.

This industry-led initiative will promote collaborative research programs in the steel sector and aims to increase investment in research and development in the steel sector from the present level of 0.2-0.3% of turnover, progressively toward the international benchmark of 1-2% turnover.

The initial approximately $32 million (about Rs 200 crore) for the creation of the SRTMI will come in equal contribution from the Steel Development Fund of the Ministry and the participating companies.

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