Author Archives: Sohrab Darabshaw

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Moody’s Investors Service has said India will be the brightest spot for the steel sector over the next 12-18 months, according to a report by the Hindu Business Line.

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Moody’s pointed out that India’s steel consumption was rising at least 5.5%-6% every year, tracking strong GDP growth of 7.3%-7.5%.

It said rated Indian steel producers had only marginal exposure to the U.S. Moody’s has estimated that their indirect exposure may also be limited, given most of their sales were to domestic automotive and manufacturing companies.

In fact, on Tuesday the Indian Steel Ministry, perhaps buoyed by sentiments such as those expressed by Moody’s, issued a statement saying it was hopeful of occupying the second slot in global steel output (after China), while the government has also taken steps to encourage secondary steel producers to boost performance.

According to Moody’s, with minimal new steel capacity expected to be commissioned until 2021 in India, robust steel demand — especially from the construction, infrastructure and automotive sectors — would keep end-product prices high, even as rising costs for key inputs, like coking coal and iron ore, put pressure on profitability.

Moody’s also noted the outlook for the Asian steel industry was stable, reflecting the consideration that the profitability of rated producers will increase moderately over the next 12 months against the backdrop of overall steady regional demand.

The robust steel demand, especially from the domestic construction, infrastructure and automotive sectors would keep end-product prices high, even as rising costs for key inputs, coking coal and iron ore pressure profitability.

The Indian Government believes that, in conjunction with the primary steel sector, the secondary steel sector holds enormous potential for growth and opportunities.

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“Strong performance of the secondary steel sector has added muscle to India’s steel production. Encouraged by the overall potential, the Government of India has taken various initiatives to improve the performance of this sector. Based on the present growth pattern, it is expected that India will rise to the second position after China,” the statement said.

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Rare earth exporters in India have lodged protests after the government snatched their rights to send these precious elements abroad.

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Rare-earth metals are a group of 17 elements, which are found in geological deposits. Some of the most abundant metals in the world are neodymium, cerium, and lanthanum.

All rare earths are classified into two groups: light rare earths (LREs), and heavy rare earths (HREs).

Just 20 years earlier, the Government of India (GoI) allowed the private sector into beach sand mining. Now, it issued a notification, wherein the right to export these rare-earth metals have been taken away.

Instead, the GoI has introduced a canalization system.

The primary aim of canalization of exports through Indian Rare Earths (IRE), according to the Financial Express, is to curtail direct private sector export of beach sand minerals and derivatives like ilmenite, rutile and zircon.

Canalizing means putting quantitative restrictions on exports.

But the move has obviously not gone down well with rare earths miners. Miners have said these checks would curtail beach sand mining activities and deprive India of a developing sector.

According to a new research report by Global Market Insights, Inc, the rare earths market size will exceed U.S. $20 billion by 2024. It’s well known that the majority of the global rare earth production capacity is in China. However, China has not shown much inclination of sharing those resources with other nations.

Thus, the focus is on countries like India and Japan — specifically India, which has a sizable reserve.

Driving this sector is the demand for magnets in automobiles, and requirements in defense and energy generation. Electric cars, for example, rely on some of rare-earth metals.

Beach sand minerals and their derivatives find diverse applications in paints and other decorative materials, papers and plastics, and high-tech applications. At present, much of India’s share of domestic production, as well as exports, are done by private sector firms.

The GoI notification said export of beach sand minerals had been brought under the STE and shall be canalized through IRE. Beach sand minerals, permitted anywhere in the export policy, will now be regulated in terms of the new policy. One of the other sources of angst for private firms in the business is that they have already made huge capital investments by way of technology and production facilities.

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According to the Financial Express report, beach sand minerals mining activity commenced in India in 1908. In addition, until 1998, other minerals were restricted only to public sector companies (except for garnet), but just after that the GoI embarked on a path of liberalization that allowed participation by the private sector.

The Anil Agarwal-led Vedanta Ltd. may have faced a blow when one of its operations in India was shut down earlier this year, but that is not stopping it from investing more money in the country.

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Navin Agarwal, chairman of the company, has said they are planning invest as much as about $8 billion (Rs 56,000 crore) to expand its oil and energy businesses in India.

“As India’s largest private sector oil producer, Vedanta Limited contributes 27% to the domestic production and aspires to take it up to 50%,” he was quoted as saying.

About U.S. $4 billion will come in within the next two to three years in various growth projects. The remaining will be in zinc, lead, silver and aluminum businesses.

Of these earmarked funds, Vedanta said it will be investing $2.3 billion towards capex on its oil and gas activities in the “near term” to increase the reserve base by around 375 million barrels. According to its latest annual report, Vedanta aims to increase production from the current 200,000 barrels per day (bpd) to 300,000 bpd over the next few years.

“Our rich project portfolio is comprised of enhanced oil recovery projects, tight oil and gas projects and exploration prospects. As well as boosting production, this investment will generate sustainable employment opportunities, directly and indirectly and bring cutting edge solutions to community needs,” Vedanta stated.

For FY 2019, Vedanta expects to achieve growth in production, with total volumes in the range of 220-250 bpd, through execution of growth projects with operating expenditure of sub-$7/boe (barrel of equivalent).

This year, Vedanta has posted record zinc and lead production. In May, Vedanta had said it had received an order from the Tamil Nadu provincial government to close the company’s 4 lakh ton per annum copper smelter plant in Tuticorin with immediate effect. At least 13 people were killed after local police opened fire on people protesting against the plant’s operations.

Vedanta has always supported its Tuticorin operations, emphasizing the copper smelter complied with all environmental norms and is amongst the best, globally.

Vedanta has often advocated for policy change on the mineral mining front in India. The chairman reiterated this, saying encouragement to explore and produce natural resources in India would lead to greater self-reliance and save billions of dollars in imports.

But in what is seen as a further blow to the company’s operations in India, the Goa Directorate of Mines and Geology (DMG) has issued an approximately U.S. $13 million (Rs 97.48-crore) demand notice to Vedanta towards non-payment of royalty for FY 2011-2013.

The company is alleged to have illegally mined iron ore to the tune of 20,76,746 tons during this period, according to the DMG, a charge hotly denied by Vedanta.

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The principal royalty amount is about U.S. $7.6 million (Rs 54.48 crore), while the interest of about U.S. $6 million (Rs 43.03 crore) has to be paid up in the next seven days.

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When it comes to coal, India’s litany of woes continues.

Despite high prices in international markets, imports continue to rise — and there’s no letting up on that front.

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After a dip in FY 2017, overall coal imports increased 10% in FY 2018. What’s more, the situation is so bad that India’s largest power producer, the National Therma Power Corporation (NTPC), is running short on supply and has sought bids to import coal.

NTPC Ltd. is seeking 2.5 million metric tons (MT) of imported coal, according to two separate tenders on its website. The last time it sought foreign coal was in 2014.

One of many reasons for the shortage is that India’s largest coal producer, Coal India Ltd. (CIL), which produces more than 80% of India’s coal, continues to fall short in production and just cannot keep up with the rising demand, driven largely by higher electricity generation.

But if you were to ask CIL, it would in turn blame India’s congested railway network and a shortage of railway carriers to ship the coal to its customers; this, they argue, has forced consumers from power plants to aluminum smelters to purchase the fuel from overseas.

Rating agency CRISIL said here in a report that the power sector imports in India were projected to cross 75 MT by FY 2023, most of it driven by demand from imported coal-based plants. This comes even as non-power sector imports are expected to decline to 70 MT due to “improvement in domestic supply post linkage auctions and development of key captive blocks allocated to the non-regulated sector,” according to the CRISIL report.

But a report by news agency Reuters had an even more interesting explanation for the continued shortage.

It cites Tim Buckley, Director of Energy Finance Studies at the Institute for Energy Economics and Financial Analysis (IEEFA), as saying that a large part of India’s coal imports was used by consumers other than on-grid power plants. Buckley pointed out to Reuters that there were about 30 gigawatts (GW) of coal-fired generation capacity that was used by captive power plants.

They included aluminum smelters, cement makers and other industrial users, more reliant on coal imports as their demand wasn’t prioritized by Coal India; meaning, these folks were last in the queue.

According to Buckley’s calculation, if this 30 GW was run at 61% capacity, it would need about 96 MT per annum, which represents about two-thirds of current thermal coal imports. So, captive power plants had to resort to imports when Coal India couldn’t meet their needs.

However, the shortages are not limited to just power stations. Coking coal, used in steelmaking, has also seen a sharp surge.

Left with little choice for now, the Indian government has directed CIL to raise daily output and sales to 2 MT from 1.4 MT achieved in the last quarter.

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The coal ministry told Coal India that it must produce and sell 1.9 MT and 1.94 MT, respectively, throughout the year. In the June quarter, CIL managed daily production and sales of 1.4 MT and 1.61 MT, respectively.

India’s aluminum sector finds itself in a state of flux.

Secondary aluminum makers in India are not upset by the import levies announced by U.S. President Donald Trump, but have expressed concern at the inverted duty structure perpetuated by the Indian government itself.

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On the other hand, India’s largest aluminum producer wants the government to cap the quantity of imports of low-cost semis, wire rods and scrap from China and the U.S., as the percentage of inbound shipments in domestic demand is steadily going up.

As has always been the case, the primary and secondary producers are once again at loggerheads.

In all this, the sector, which is not yet on the core sectors list, has demanded a new policy itself, which the government says it is contemplating.

The Metal Recycling Association of India (MRAI), a representative body of the secondary aluminum producers, recently issued a statement urging the government to bring basic customs duty on imports of aluminum scrap to zero from 2.5%. This was in response to a move by the Aluminium Association of India (AAI), which wants the duty to be raised to 10%. MRAI feels the move of a hike will take away jobs of thousands of people working in the downstream & ancillary industry, (MRAI) said in a statement.

Ongoing exports of primary aluminum have upset the secondary producers more than the Trump tax. This lot claims the skewed duty structure has squeezed capacity utilization and affected margins.

In all this, the largest producer of aluminum, Hindalco, has asked the government to impose quantitative restrictions on imports in the near term.

A Bloomberg Quint report quoted Satish Pai, managing director and CEO, as saying the government should move to duty safeguards eventually, adding that while quantitative restrictions will be helpful in the short term and are allowed under the World Trade Organization regime, safeguards will take at least six months.

Hindalco has asked the government to limit imports based on the average of the last three years of imported quantity.

In this kind of tax regimes, India’s aluminum industry is barely remaining competitive because it has the highest production costs for aluminum among the largest producers (including Canada, Russia, the Middle East and China). Other hurdles include high power costs, which drove smelter metal’s cost 73% higher in the last 15 years compared with a 64% rise in the price of aluminum on the London Metal Exchange.

As India strives to meet its economic growth targets, aluminum is becoming increasingly critical for its infrastructural needs. In India, aluminum consumption is pegged at 2.5 kg per capita. To reach the global average of 11 kg per capita, India must up annual consumption by 16 million tons.

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Experts in India are calling for the government to formulate a National Aluminium Policy (NAP) focusing on holistic short- and long-term visions, identifying growth targets for demand augmentation and capacity addition.

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India’s trade tiff with the United States has all the hallmarks of a potential political battle — for India, at least. With general elections not too far away, it looks like Narendra Modi’s government does not want to really stir the pot, lest there is some fallout in the domestic political scene.

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That could be one of the reasons why the Indian government has chosen to defer a tit-for-tat duty on the import of over two dozen products from India, including certain flat-rolled stainless steel products. It was supposed to come into effect Aug. 8, but now the new date is Sept. 18.

Trade between India and the U.S. has been buffeted by many problems in the past few years. The hike in import duties on Indian goods coming into the U.S. a few months ago was one more such hiccup.

But the ruling dispensation here does not seem to want to take any chances. So, in a renewed effort to resolve the differences between the two countries, India’s Commerce Ministry has requested the Finance Ministry to extend the implementation of higher duties by 45 days.

The Trump administration had decided to hike the import duties on certain steel and aluminum products, not only from India but other countries, such as China, too.

Though the U.S. Trade Representative’s office had two rounds of dialogue with Indian officials, a settlement was not reached. Now, by deferring the retaliatory hike, the Indian government is hoping the issue can be resolved in the next 45 days.

On India’s list of increased duties are 29 products, which include walnuts, almonds, pulses, apples and non-iron.

Duty on flat-rolled iron products has been raised to 27.50% from 15%, while certain flat-rolled stainless steel products will now attract 22.50% duty (compared with the earlier 15%).

Besides the domestic political fallout, the Indian government may also be a bit apprehensive of the White House’s response and the potential for further targeted actions.

India is not really on the same plane as China vis-à-vis such import tariffs; Washington looks at New Delhi very differently than it does Beijing. For one, unlike China, India is not a major exporter of steel and aluminum to the U.S. In 2017, the U.S. accounted for about 2% of India’s steel exports.

Things between India and the U.S. are proceeding at a different level, evident from the fact that last week the U.S. Department of Commerce granted New Delhi a special status that gives the emerging market an automatic waiver for exports of certain military and dual-use technologies (much to the consternation of the Chinese). That could be another reason why the Indians have decided to hold off on enacting the retaliatory duties.

Steel Supplies Dumped in India

Meanwhile, some Indian newspaper reports have said following the duty hike, some countries like China and South Korea have stepped up the dumping of steel in India.

They are said to be diverting supplies from the U.S. and the European Union in massive volumes to beat the impact of a global tariff war. Quoting official data, the report said it suggested steel supplies from China, the world’s largest steel producer, surged to 362,000 tons in the April-June period, up 67% sequentially from the 217,000 tons in the previous quarter.

As Japan and Korea enjoy duty relief under their respective free-trade agreements with India, the imports from these countries are 10% cheaper than domestic steel.

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Importantly, while the combined steel exports by China, Japan and South Korea to the U.S. dropped 17%, or by 241,000 tons, in the April-June period vis-à-vis the previous quarter, their supplies to India rose by 459,000 tons, up 45% from the March quarter. This, said the report, clearly showed that Asian steelmakers were rerouting supplies, meant for the US and other nations, to India.

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Mining for gold is an expertise of which not too many Indian miners can boast. In fact, it makes up a minuscule portion of overall annual mining activities in the country.

With neighboring China on the prowl for gold mining projects internationally, some recent news has brought some cheer to the gold sector in India.

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For the first time, a state-owned miner will take up gold mining in India. Earlier this month, India’s National Mineral Development Corporation (NMDC) won the rights to it at an e-auction. In the process, it beat several biggies, such as Vedanta and Adani. NMDC will dig up a gold mine located in the southern Indian state of Andhra Pradesh.

NMDC is not a newcomer to gold mining. It is developing a gold mine in Tanzania, while its Australian subsidiary, Legacy Iron Ore, is currently in the process of testing as many as 17 gold tenements in the Western Australian region.

The Chigargunta-Bisanatham mine will be an underground operation. First-phase production is expected to begin two years after the permitting process.

According to a report by the Press Trust of India (PTI), the initial investment is estimated to be about U.S. $4.5 billion. The Indian government stands to earn 38.25% revenue on sale value. It has estimated reserves of 1.83 million tons containing 5.15 grams of gold per ton.

Incidentally, India is on the way to formulating a new gold policy, which will promote domestic gold mining.

Industry experts believe that at least 100 tons of gold can be mined annually in India, from the present level of about 1.5 tons (as compared to China’s 450 tons a year). Geologists believe that India sits on vast deposits of gold, as the terrain from Australia to China is very similar, so they see no reason why India cannot step up its gold mining.

Experts want the Indian government to factor in the complete journey of gold, from mines to market, under the new policy.

Very slowly, after a court-imposed e-auction for mining, gold mining has picked up.

One of the first in this business was Vedanta. In February 2016, Vedanta Resources became the first private company to successfully bid for a gold mine in India, in the central Indian state of Chhattisgarh. The mine has gold reserves of 2.7 tons.

Other Indian private miners, in collaboration with international players, have started to move in. More and more are expected to follow in the footsteps of Vedanta and NMDC.

Gold mining will also save the country foreign exchange, since it imports most of its gold at the moment.

A previous government report identified the unrefined gold resource base in the country at 658 tons of metallic gold. The report also stated that this tonnage is spread over 13 different states.

India needs to get its act together on the gold mining front, especially since China is already well on its way. Since 2013, when gold prices plunged 30% in a year, China has been ramping up overseas gold-mining investments.

There is no doubt that developing gold mines is a long-term, risky process requiring years of planning, research and infrastructure development. Miners also need to conduct analyses on how much gold a ton of ore actually contains.

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But for Indian companies interested in this, several bottlenecks, including environment permissions, remain.

If a miner has to apply for a gold mining license, it has to take over 100 permissions before getting a permit — a process that takes over seven years.

Hopefully, experts say, this will be history once the new policy is adopted.

Source: wto.org

Ultimately, it went along expected lines.

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India and a handful of other nations held trade dispute settlement consultations with the United States over its steel and aluminum tariffs in Geneva, but got absolutely no concession from the latter, according to reports coming out of the meetings.

India, Canada and Mexico confabulated with the U.S. on the issue of the latter imposing additional duties of 25% & 10% on steel and aluminum imports.

Earlier this month, China, Norway and the European Union also held similar talks with the U.S., under the aegis of the World Trade Organization (WTO) in Geneva. Almost all such disputes are held under Article 4 dispute settlement consultations. MetalMiner previously reported about the Geneva meeting and its attempt to try and break the trade tariff imbroglio.

The U.S., as many had expected, stuck to its guns that no law required it to provide any reason for the Section 232 measures on steel and aluminum, since they remain “sovereign determinations” that fall under Article 21 of the GATT 1994, according to media reports.

Apparently, in an earlier meeting, the U.S. told the representative of another country in such a meeting that Section 232 revolved around issues of national security, and was thus not available for review or capable of resolution by WTO dispute settlement.

Representatives of India and other nations raised several questions around the proposed tariffs. They claimed the additional duties constituted a “disguised safeguard” measure, as the U.S. Department of Defense had said that there was no threat to the country’s national security from steel and aluminum imports.

The U.S. delegation, on the other hand, maintained it was unable to share the reasons for the decisions under the Section 232 provisions. Delegates also wondered how countries such as Australia, Brazil, Korea and Argentina had been exempted from similar additional duties, and why these imports did not pose a national security threat to the U.S.

Clearly, unable to get much from the U.S. at this meeting, the only recourse the six nations may have is to approach the WTO with a request to establish a disputes settlement panel to rule against the U.S. measures.

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In March this year, the U.S. had also launched a challenge at the WTO against India’s export subsidies, arguing the programs give Indian companies an unfair advantage. The U.S. claimed these export subsidy programs harmed American workers by creating an uneven playing field on which they must compete.

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What is one man’s meat is another’s poison.

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The proverb seems to be true for India’s coal supply woes.

The country’s power ministry has advised all provinces to start importing coal for the next three years in order to operate their power plants … which, in turn, is music to the ears of coal miners in the United States.

According to a report by the Energy Information Administration, U.S. miners, otherwise struggling to find buyers, may end up exporting 104 million tons of coal in 2018 — up 7.2% from a year ago.

In April alone, India purchased almost 7 million tons, which was one-fifth of all U.S. coal exports.

For the last few years, power plants in India have cut back on coal imports because of the fall in the value of the rupee, the rise in global prices, and increasing reliance of consumers on green energy.

Facing a major coal crunch, Indian coal ministry officials feel there’s no way out but to go ahead with larger imports.

Coal imports were likely to increase to 145 million tons (MT) in 2018, and the uptrend will continue in the next four years, according to a report prepared by the Minerals Council of Australia. The imports stood at 137 MT last year.

The Central Electricity Authority of India (CEA) has said in response to a power ministry directive to take stock of coal supply that government-run thermal power plants must import coal to fill the gap in domestic supply. By the CEA’s own reckoning, India needed to buy only 20 MT of coal from abroad. The power sector’s requirement for coal is estimated at 615 MT for fiscal year 2019.

According to the CEA, the coal stock at power plants had depleted to 15.3 MT in June 2018 — sufficient to power plants for an average of only nine days, compared with the normal level of 35.5 MT. It is the deficit of about 20 MT that CEA said must be imported.

Last year, India imported 7.54 million tons of U.S. thermal coal and 3.92 million tons of metallurgical coal (largely used in steelmaking).

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In the past, Narendra Modi’s government has repeatedly stressed that India was eventually looking to eliminate coal imports. India imported about 80MT in fiscal year 2016, but imports fell to 53 MT in fiscal year 2018.

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The U.S. and India are scheduled to sit across the table this week in Geneva to discuss the case filed by India with the World Trade Organization’s (WTO) dispute settlement mechanism over the U.S.’s imposition of import duties on steel and aluminum.

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The talks will be held under the aegis of WTO’s dispute settlement mechanism, according to a news report by the Press Trust of India.

India is part of the group of nations — which includes China, Russia and Norway, among others — to have filed separate dispute claims on the topic with the WTO. The meeting is part of the consultations the U.S. will be holding with all such countries on July 19-20.

It may be recalled that the U.S. had imposed a 25% tariff on steel and a 10% tariff on aluminum imports from India. India’s exports of the two commodities to the U.S. stands at about U.S. $1.5 billion per annum. India had initially tried to raise the issue with the U.S., and then informally with the WTO, calling the move an “abuse of global trade provisions that could spiral into a trade war,” — sentiments similar to the one expressed by India’s neighbor, China.

In May, India dragged the U.S. to the WTO dispute settlement mechanism over the imposition of import duties.

Consultation is the first step of the dispute settlement process. Incidentally, both the countries are already involved in disputes at the global trade body in the areas of poultry, solar, and export subsidies, to name a few.

According to another news report, senior trade officials of India and the U.S. will meet later this month in Washington to conclude negotiations on a “mutually-acceptable trade package.” Quoting an unnamed official source, it said the meeting comes amid an escalation of the global trade war.

Since India’s proposed additional tariff worth U.S. $235 million on 29 U.S. goods — including almonds and apples — are retaliatory in nature, any rollback of the additional duty on Indian steel and aluminum by the U.S. will lead to a withdrawal of corresponding taxes by the Indian Government on U.S. goods, too.

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The U.S. sees good prospects for its companies in the Indian civil aviation, oil and gas, education service, and agriculture segments.