Author Archives: Sohrab Darabshaw

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Even as news came in late last week that some of India’s biggest steelmakers were set to expand production after reporting solid quarterly earnings amid strong steel prices, well-known research agency CRISIL has said in a report that resolution of stressed steel assets – those that are bankrupt – will “alter” the Indian steel sector irrevocably.

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Steel companies with about 22 million tons (MT) of crude steel capacity have been referred to the National Company Law Tribunal (NCLT) in the first round of the stressed assets resolution process by India’s apex bank, the Reserve Bank of India (RBI).

The CRISIL research report said the resolution of these cases would alter India’s steel sector landscape in three ways:

  • Over half of steel sector’s outstanding debt would stand resolved
  • About a fifth of India’s crude steel capacity held by these companies will move to stronger hands, resulting in better working capital and liquidity management (which, in turn, would lead to improving utilization levels)
  • The flat steel segment would consolidate further and be controlled by fewer players – both domestic and global

“For acquirers of these assets, apart from attractive product portfolios & locational advantages, these assets also offer easy scalability,” said Prasad Koparkar, senior director of CRISIL Research. “The 22 MT of capacities under resolution have brownfield expansion potential of another 20-21 MT – based on their environment clearance and regulatory filings.”

India’s flat steel market is dominated by six players that account for 85% of the capacity, with the rest being distributed between smaller players and re-rollers. Of the six, three are currently part of the NCLT I resolution process.

Many, as reported by MetalMiner earlier, were being eyed by large domestic and international steelmakers for expansion or entry strategies.

The CRISIL report further claimed that based on various acquisition scenarios, the flat steel market in India was expected to consolidate further from the current scenario — of 85% being controlled by six players — to three or four players.

Already, India’s biggest steelmakers, such as JSW Steel Ltd., posted record net income last Wednesday and outlined a $6 billion plan to raise output. Tata Steel Ltd., which aims to double domestic capacity, swung to profit, helped by a one-time gain. Both are ramping up to meet an anticipated surge in domestic consumption, with the government set to spend trillions of dollars on expanding infrastructure.

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The Bloomberg report said JSW has forecast Indian steel consumption to rise by about 7.5% in the 2019 financial year.

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India has been champing at the bit ever since the United States imposed a 25% import tariff on steel and 10% on aluminum imports to protect its own industry.

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Last week, India told an informal meeting of heads of delegations at the World Trade Organization (WTO) that the U.S.’s move was an abuse of global trade provisions that could spiral into a trade war, the Economic Times reported.

India raised concerns and warned that this had a “clear risk of spiraling into a trade war” since it would prompt other countries to take retaliatory measures. The U.S. Department of Commerce in February had found that the quantities of steel and aluminum imports “threatened to impair national security.”

On March 8, the U.S. enacted the tariffs, invoking national security. (Since then, South Korea, Australia, Brazil and Argentina have won long-term exemptions, while the E.U., Canada and Mexico have temporary exemptions which are now set to expire June 1 after a 30-day extension was recently announced.) After the March announcement, several countries — China, India, the E.U., Russia and Thailand, among others — called upon the U.S. to enter into safeguard consultations.

India, specifically, said it would lodge a trade dispute against the United States at the WTO if Washington did not exempt it from the higher tariffs.

Following an outcry, U.S. President Donald Trump agreed to suspend their imposition until May 1 for Argentina, Australia, Brazil, South Korea, Canada, Mexico and the European Union — but India was not included on this list.

The U.S. had also rejected a request from India to enter into what are called safeguard consultations at the WTO.

India said it considered the U.S.’s measure to “be an emergency action/safeguard measure within the meaning of Article XIX of the General Agreement on Tariffs and Trade, 1994, (GATT 1994) and the Agreement on Safeguards.”

“As an affected member with significant export interest to the United States for the products at issue,” India said it wants “consultations with the United States pursuant to Article 12.3 and Article 8.1 of the Agreement on Safeguards and Article XIX:2 of the GATT 1994.”

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The U.S. said that under Section 232 of the Trade Expansion Act of 1962, Trump determined that tariffs were necessary to adjust imports of steel and aluminum articles that threaten to impair the national security of the U.S.

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There’s a new trend on the solar energy harnessing front in India.

Like in China and a few of the Southeast Asian nations, India is seeing a spurt in what are called “floating solar plants.”

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In late 2017, the country inaugurated its largest such floating plant, a 500 kw (kilowatt peak) by the Kerala State Electricity Board (KSEB). This one floats on 1.25 acres of water surface of a reservoir, and has 1,938 solar panels, which have been installed on 18 ferro cement floaters with hollow insides. The project uses high-efficiency solar panels and a floating substation has been set up on the reservoir itself to convert the output into 11 kV.

While the concept of floating solar plants in India is old — it was first mooted by Tata Power way back in 2011 – they caught the fancy of energy developers only now. The Tata plant is on the backwaters of a dam located close to Tata’s hydro-electricity plant.

A second pilot project was started on the banks of the Sabarmati river in the province of Gujarat in 2012. It was awarded to SunEdison at a cost of about U.S. $2.7 million. The pilot project was developed by Gujarat State Electricity Corporation (GSECL) with support from Sardar Sarovar Narmada Nigam Ltd. (SSNNL).

But it’s only in the last few months that the activity has picked up. The government has floated eight floating solar power projects of capacities ranging between 2 MW to 1,000 MW.

The floating plants tie in with the Indian Government’s overall, rather ambitious, renewable energy plan.

India and China are both leading in this race. In 2017, Asia accounted for nearly two-thirds of the worldwide increase in renewable energy generating capacity, according to a report published in April by the International Renewable Energy Agency. Renewable energy capacity has nearly doubled over the past five years, reaching 918GW in 2017.

According to media reports, renewable energy firm Avaada Power is now in talks with various provincial governments in India to set up floating solar projects.

The company wants to increase its installed solar capacity to 5,000 megawatts (MW) in the next four years, from 1,000 MW at present, and a major chunk will come from solar energy. The floating solar segment has a potential to generate 300 gigawatts (GW) of power across the country.

Many provincial governments are also expected to call for tenders in this space soon. Also, India’s National Hydroelectric Power Corporation (NHPC) has announced its plans to set up 600 MW of floating solar capacity at the 1,960-MW Koyna hydel power project in the State of Maharashtra.

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Experts are optimistic that with India’s large network of water bodies, this trend of floating solar plants will become the norm soon, though care has to be taken while setting them up so that they do not affect marine life.

The Indian steel industry is witnessing some interesting times — and not in the sense of the Chinese curse.

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After a hiatus, domestic demand is up. On the other hand, the sector is seeing consolidation as international and domestic steel players spar over assets of bankrupt Indian steel companies.

Much of the action of late has been around Essar Steel, the country’s fourth-largest steelmaker, which is on the block after filing for bankruptcy last year.

A buyer is expected to be announced within the next few weeks, gaining control over 10 million tons in annual production capacity, equal to one-tenth of India’s crude steel output in 2017.

Yet, hurdles remain.

A joint bid for Essar by ArcelorMittal and Nippon Steel & Sumitomo Metal is among the top contenders. The Luxembourg-based ArcelorMittal’s first bid was held ineligible due to its joint venture with a debt-ridden Indian company. But Arcelor has moved away and reentered the race with the Japanese player, Nippon.

There has already been two rounds of bidding, and now there are reports of a third due to legal reasons. Earlier, a court had ordered the Essar Steel’s Committee of Creditors (CoC) creditors to reconsider bids from ArcelorMittal and a Russian-led consortium, sidelining a rival offer from London-listed Vedanta. The second round was scrapped by the National Company Law Tribunal (NCLT) last Friday after it hauled up the lenders and the Resolution Professional for not doing a thorough job in handling the bidding process.

Reports in the Indian media now say the CoC could be looking at inviting fresh bids for the stressed asset, paving the way for JSW Steel, Vedanta, Tata Steel, ArcelorMittal and Numetal to make another attempt to acquire it.

The lenders have sought legal opinion on calling for fresh bids. A final decision will be made later this week, as not all bankers favor going through the process again, the Economic Times reported.

While all eyes have been on this action, many have missed this development. India’s steel production rose to 86.7 million tons in the nine months to December 2017 from 73.96 million tons in the year-ago period, according to steel ministry data.

As per an earlier forecast, India’s domestic steel demand was expected to increase by 5.5% in 2018 and 6% in 2019, making it the fastest-growing market for steel among the top 10 largest steel markets by volume.

All this activity is been monitored closely by the Government of India (GoI), which has announced its own initiatives to propel the sector. A senior official told news agency Press Trust of India (PTI) that the GoI would roll out a red carpet to the big guns internationally who want to set up greenfield steel projects.

Steel Secretary Aruna Sharma said the sector provides huge growth potential against the backdrop of the country becoming the world’s second-largest alloy producer with increasing consumption.

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Foreign players like Posco, ArcelorMittal and Thyssenkrupp already have presence in the country.

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India and the United States may be at loggerheads over the recently announced trade tariffs on the import of metals, but that has not stopped the two nations from talking cooperation in other fields like oil and gas or renewable energy.

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On Tuesday, U.S. Secretary of Energy Rick Perry and the Indian Minister of Petroleum and Natural Gas Dharmendra Pradhan co-chaired the inaugural meeting of the U.S.-India Strategic Energy Partnership in New Delhi. This was a meeting following up on the announcement of the tie-up by U.S. President Donald Trump and Indian Prime Minister Narendra Modi in June 2017, in Washington, D.C.

The two countries will jointly look at ways to increase energy security; expand energy and innovation linkages across respective energy sectors; bolster strategic alignment; and facilitate increased industry and stakeholder engagement in the energy sector, the government said in a statement.

The Indian minister was quoted by the news agency Press Trust of India (PTI) as saying that the U.S. and India will pursue four primary pillars of cooperation: oil and gas; power and energy efficiency; renewable energy and sustainable growth; and coal.

A joint statement issued after the meeting reaffirmed the commitment by both sides to an early and full implementation of their civil nuclear partnership, including the planned supply of six Westinghouse reactors for the proposed nuclear power station in the Indian province of Andhra Pradesh. The cooperation in nuclear energy is being pursued through relevant bilateral mechanisms, the Times of India reported.

According to the PTI report, Perry indicated that recognizing the significance of civilian nuclear energy for meeting the growing global energy demands in a cleaner and more efficient manner, India and the U.S. were engaged in the implementation of the 2008 agreement for cooperation concerning peaceful uses of nuclear energy. Read more

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India found itself on the back foot in the first meeting of trade representatives from India and the United States in the Indian capital, New Delhi, last week. It was held to discuss the latest U.S. trade tariffs on steel and other metal imports.

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According to reports, while the Indian delegation did speak of the “harsh” tariff on aluminum, the U.S. team kept bringing up the need to have “a greater balance in bi-lateral trade,” which experts claim, was currently in India’s favor. The U.S. team was led by Assistant U.S. Trade Representative Mark Linscott.

A report in the Financial Express said the U.S. side also delved at length into India’s intellectual property regime, and sought a relaxation in its provisions on ever-greening of patents, which has been a longstanding demand of the U.S.

If the Indian trade delegation had thought that it would have an upper hand in the discussions, it did not seem so. The U.S. counterparts sought a better trade balance with India through greater access to American products, and the removal of restrictions on the pricing of medical equipment like bioresorbable stents.

The Indian side reiterated its demand that the U.S. should roll back the increase in import tariffs on steel and aluminum, announced last month, where India was concerned. The U.S. had imposed a 25% levy on steel and 10% on aluminum on a handful of countries, including India and China.

The Linscott team remained noncommittal to this request, according to reports, except for saying the sentiments would be conveyed to Washington.

Under the Generalised System of Preference (GSP) program, select developing countries are allowed to export specified products duty-free to the U.S. India has often been at the top of this list. Exports of select items in the textiles, engineering, gems and jewelry, and chemical sectors are allowed duty-free access to the U.S.

The GSP between the two nations expired recently, and now it’s seen as the U.S. wanting to link it to the trade balance. India has conveyed that this would not be a prudent step for trade between the two countries.

This first in a series of trade meetings will culminate in the trade policy forum meeting to be held later this year.

India’s imports from the U.S. in the April-February FY 2018 period were valued at U.S. $23.34 billion, which was 14.68% higher than imports in the comparable period of the previous fiscal. The country’s exports to the US during the period was at $43.32 billion, 13.34% higher.

Earlier in the month, Alice Wells, principal deputy assistant secretary for South and Central Asian affairs, told The Hindu newspaper that while America’s average tariff was a little over 3%, India’s was over 13%, and that this disparity was the source of the friction.

While India goes about trying to get some relief from the high tariff, it faces another salvo from another side on the same subject, this time from the European Commission (EC).

The latter had initiated “safeguard investigation” on steel products to ascertain whether import tariffs imposed by the U.S. need to be countered to prevent Asian producers from flooding the European market. Analysts claimed this would have a significant bearing on India’s steel exports.

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The investigation, the notice for which was issued recently, will cover India as well, though it is targeted primarily at the U.S. India is estimated to have shipped around 3.0-3.5 million tons of steel to Europe so far this fiscal year. The EC investigation was initiated on a suo moto basis, and covers about 130 items in all grades of steel.

Unlike China, its neighbor India is not right now thinking on the lines of imposing retaliatory tariffs on U.S. products.

However, the Indian government has requested the U.S. to exempt it from the hefty tariffs on steel and aluminum imports.

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This was revealed by a minister in the Lower House of the Indian Parliament in a written reply to a question. Following the announcement by U.S. President Donald Trump in late March of increasing the tariffs on imports, the Indian government had also conducted a study on the impact on Indian goods and steel industry.

MetalMiner reported that the move by the U.S. government may not impact India the way it will China.

India exports around U.S. $1.5 billion of these products to America.

India said it was willing to sit with the U.S. and solve the issue bilaterally.

The U.S. president signed two proclamations that levied a 25% tariff on steel and 10% tariff on aluminum imported from all countries, except neighboring Canada and Mexico (since then, others have gained exemptions).

A news report in the business newspaper Mint has said India will seek to convince the U.S. to exempt it from these duty hikes at a bilateral meeting during a visit by Assistant U.S. Trade Representative (USTR) Mark Limscott to New Delhi next week.

The meeting scheduled for April 10, in preparation of a trade policy forum dialogue for the year’s end, will be the first opportunity for the Indian side to put across its case for an exemption.

The news report quoted an unnamed commerce ministry official as saying the U.S.’s decision to impose tariffs on the grounds of national security, and then grant exemptions to allies, was against World Trade Organization (WTO) rules.

India does not want to “retaliate” like China against the U.S., as the latter was considered to be a “valuable strategic partner.”

China recently hiked tariffs by up to 25% on 128 US products, from frozen pork and wine to certain fruits and nuts, escalating a trade dispute between the two nations.

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India is the world’s 14th-largest steel exporter, and sold iron and steel worth $320 million and aluminum worth $350 million to the U.S. in 2016-17. The U.S. ranked seventh as a destination for Indian steel, accounting for 5% of exports.

Late last year, India’s National Aluminium Company (Nalco) had talked of striking up a joint venture (JV) in India with two companies – Canadian firm Almex and Rusal of Russia.

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This week, according to a news report, Nalco has firmed up plans to set up the JV with Almex for the production of automotive-grade aluminum. The multimillion-dollar project, according to the report in Business Standard, is expected to come up at the downstream aluminum park at Angul in Odisha Province, near Nalco’s aluminum smelting unit over 50 acres of land.

Almex reportedly has responded to the expression of interest by Nalco. The JV will produce auto-grade aluminum, and also of special alloys that find applications in aerospace. At present, this high-grade aluminum is not manufactured in the country. Nalco will have the majority equity in the JV.

In India, aluminum makes its way into about 300 applications, compared with over 3,000 applications worldwide.

The second JV expected with Rusal, too, is expected to manufacture special-grade aluminum to be used in metro trains, electric vehicles, aerospace and automobile sector, according to Nalco Chairman and Managing Director T.K. Chand.

When ready, the JV between Nalco and Almex will have an annual production capacity of 60,000 tons. Nalco has already committed supply of 50,000 tons a year of molten aluminum to downstream companies that chose to install their units at the park. Almex specializes in the production of aerospace-grade aluminum, while Rusal is a big player in primary aluminum, aluminum alloys, foil and alumina.

Propelled by profits, Nalco has been working on expanding its aluminum, alumina and power capacities.

The company earlier announced it planned to achieve a target of over 1 million tons of production capacity by 2020. In order to reach this goal, the company was implementing several new major capital expenditures.

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The Odisha aluminum park has already bagged one overseas investment from Bahrain-based Midal Cables.

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India’s trying to do an OPEC in solar energy, screamed some headlines in Indian newspapers after the founding ceremony of the International Solar Alliance (ISA) was held here recently, witnessed by Indian Prime Minister Narendra Modi and French President Emmanuel Macron.

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It was during former French President Francois Hollande’s visit to India in January 2016 that Hollande and Modi laid the foundation stone for the ISA headquarters in Gurugram district in northern India, adjacent to the National Institute of Solar Energy (NISE).

For the uninitiated, the ISA is a treaty-based alliance of over 120 countries, most of them being “sunshine countries,” which lie either completely or partly between the Tropic of Cancer and the Tropic of Capricorn. Its primary objective is to work for efficient exploitation of solar energy to reduce dependence on fossil fuels.

In addition to land, India has also contributed U.S. $27 million to build the ISA campus and has committed to meeting the operational expenditure of this body for the first five years.

Now comes the news that the French government will be committing €700 million in investment to this alliance.

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The Indian metal industry seems divided for now over the implications of U.S. President Donald Trump’s announcement of the intention to impose tariffs on steel and aluminum imports.

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News reports and statements by industry leaders, along with reports by research agencies, show no unanimity on how the decision by the U.S. government, if implemented, would affect trade in India aand other neighboring Asian countries.

A report by news agency Press Trust of India (PTI), quoting industry leaders, said India will not be impacted much.

President Trump said last week he had decided to impose a steep 25% import tariff on steel.

Quoting H Shivram Krishnan, Essar Steel commercial director, the PTI report said the U.S. decision was not compliant with World Trade Organization (WTO) regulations. Former Steel Authority of India Ltd (SAIL) chairman Sushil Kumar Roongta said that the move may impact some of India’s steel exports to the U.S.

On the other hand, Sanak Mishra, former managing director of SAIL’s Rourkela Steel Plant, told PTI the decision may not have a significant impact on India as of its total steel imports, U.S. imports only 2% from India.

Some experts in India believe if the U.S. President went ahead with his decision, it would spark off a retaliatory war between exporting nations and the US, disrupting the just-about-recovering global steel industry.

On the official front, the Indian government, without naming the U.S., has let it be known that it may not exactly be a wise move. In a nuanced statement, Indian trade envoy J S Deepak said the government shared the concerns that some members had expressed on recent developments that could lead to new tariff barriers and even a trade war.

The envoy added that application of tariffs must respect the ceiling of bound rates agreed to at the WTO.

Several countries, including the European Union, China and Japan, to name a few, have criticized President Trump’s announcement.

India has also cautioned about the threats posed by the U.S. to the WTO’s dispute settlement functions because of the continued delay in selection and appointment of members to fill vacancies in the Appellate Body, the highest limb for adjudicating global trade disputes.

The U.S. is India’s largest export destination with U.S. $42.21 billion worth of shipments sent in 2016-17. But India’s steel and aluminum exports to the U.S. remain low. While steel exports to the U.S. stood at only U.S. $330 million, export of finished steel products were U.S. $1.23 billion in 2016-17. Total exports of aluminum and aluminum products stood at $350 million.

But a report in the Business Standard said India may have to brace itself for more imports from China into India as a result of the U.S. action.

On the other hand, ratings agency Moody’s said in a report that Asia, which produced more than two-thirds of the world’s steel, would “be minimally affected” when compared to the rest of America’s trading partners. Asian exports of aluminum and steel to the U.S. typically amount to less than 1% of GDP or exports, Moody’s reported.

Moody’s said the direct impact on steel companies would be manageable for the steel sector and rated steelmakers in Asia, because steel is predominantly traded within the region.

The CEO of Japanese giant Nippon Steel, the world’s second-largest steel producer by volume, has already dubbed Trump’s decision “regrettable.”

The one area likely to be affected if Trump goes ahead is metallic scrap imports. The U.S.’s imposition of import tariff on primary metals, including steel and aluminum, was likely to hit India’s 10 million tons (MT) of metallic scrap import annually, according to this news report. The U.S. makes up 20% of this import.

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More use of scrap as raw material for metal producers in the Unites States will result into its lower availability for importers across the world. This means scrap price would move up outside the U.S., which would impact secondary metal producers into India, according to Sanjay Mehta of Material Recycling Association of India.