Author Archives: Sohrab Darabshaw

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There’s a feel-good story emerging out of India vis-a-vis the steel sector. A recent policy document showed a rise in steel exports in 2017, while a freshly released World Steel Association (WSA) report recorded a growth in crude steel production last year.

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The Economic Survey of India 2017-18, a document released just prior to the union budget in India, has said a mix of policy inputs for local steel, the rise in global steel prices and a slew of efforts by the Indian government to protect the domestic steel market from cheap imports had all helped in raising steel exports from India to an “unprecedented” 53% rise during the April-December 2017, during which output rose to 7.6 million tons (MT).

Local consumption itself rose 5.2% during that period to 64.9 MT. Sale of finished steel rose 5.6% to 79.3 MT during the same period, largely because of a boost from India’s core infrastructure sector.

According to the WSA report, India’s crude steel production grew by 6.2% to 101.4 MT in 2017 compared to 95.5 MT in the previous year. While China remained the world leader by producing 831.7 MT in 2017 (up 5.7% from 786.9 MT the previous year), Japan took the second spot, but witnessed a decline in steel output by 0.1% to 104.7 MT in 2017 (from 104.8 MT in 2016).

The WSA report noted world steel production touched 1,691.2 MT for 2017, up by 5.3% compared to the 2016 output of 1,606.3 MT, which sector analysts say is good news.

Specifically, India overtook the U.S. to become the world’s third-largest steel producer.

Back up a few years and India was looking at surplus steel production capacity and the flooding of the market with cheap steel from countries such as China and South Korea.

After some loud complaints by local steel bodies and producers, the Indian government raised customs duty and imposed anti-dumping duty. The Minimum Import Price (MIP) was introduced in February 2016, and all these measures had ensured the recovery by domestic producers, the Economic Survey said.

In between, somewhere in 2016-17, exports started dipping again, and the government then notified anti-dumping duties and countervailing duties on various steel products in February 2017. This included imposition of anti-dumping duties on imports of seamless tubes, pipes and hollow profiles of iron, alloy or non-alloy steel originating and exported from China. Similar duties were slapped on hot-rolled coils (HRC), HR plates, cold-rolled (CR) products, wire rods and color coated steel. The government also levied countervailing duty on imports of stainless steel cold rolled flat products of all grades/series from China, Korea, the European Union, South Africa, Taiwan, Thailand and the U.S.

In 2017, the Indian government rolled out a new steel policy, as reported by MetalMiner.

To add to this, preference to locally manufactured select iron and steel products has been enforced since May 2017. These measures have helped keep a check on imports, which went up by only 10.9% in April-December 2017 to 6.1 MT, the Economic Survey said.

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India’s domestic consumption of steel per capita is around 65 kg, compared to global average of 235 kg — a worrisome factor in an otherwise positive growth story for Indian steel. India, however, is pushing for an increase in per capita steel consumption to 160 kg by 2030.

Tata Steel is turning bullish on growth in India. Its global CEO and managing director, T.V. Narendran, has said the time had come for Tata Steel Ltd to start its next leg of expansion.

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“We see great opportunity to grow in India and we have said we want to grow in India. We are well positioned because we have organic and inorganic opportunities to grow,” he told reporters recently.

The CEO said the company’s Kalinganagar project in the Odisha province of India had “shaped up well” and was in full production. It was time to move on the second phase of expansion, already approved by the board.

The Tata Steel board has approved the next phase of capacity expansion in Kalinganagar to 8 million tons per annum, up from 3 million tons at present. The expansion will cost over U.S. $4 billion.

The total capacity of Tata Steel India operations is 13 million tons per annum at present. The expansion is expected to be concluded in 48 months, Tata Steel said in a regulatory filing in December 2017.

What is interesting is that as part of its expansion plans, Tata Steel had submitted bids for at least three stressed steelmakers: Bhushan Steel Ltd, Electrosteel Steels Ltd and Essar Steel India Ltd.

The Tata Steel CEO said the current period was a “great opportunity” for anyone in the steel industry with the appetite and ambition to grow in India. To fund its aggressive expansion plans, the company’s board on Friday approved raising up to U.S. $2 billion (Rs 12,800 crore) through a rights issue.

Starting Feb 14, the rights issue will remain open for subscription for two weeks. Tata Steel had recently raised U.S. $1.3 billion (Rs 8,304 crore) at current exchange rate, through a sale of unsecured bonds in overseas markets. The proceeds of the issue will be used to refinance the group’s offshore obligations.

Incidentally, Tata Steel is also the chief sponsor of the triennial steel conference, organized by the Iron and Steel Institute of Japan, The Chinese Society for Metals, The Korean Institute of Metals and Materials, and the Indian Institute of Metals. It’s coming to India after 2003.

About 70 keynote speakers, half of them from countries such as China, Korea, Japan, Netherlands, U.K., U.S., Germany, Belgium, Canada, are expected to address the meet.

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“Academics from the University of Cambridge, and Chongqing University, China, heads of research labs at Nippon Steel and Sumitomo Metal, Japan and POSCO, Korea will address issues such as surface treatment and corrosion, steel products and applications and environmental engineering and waste utilization,” said Anand Sen, Tata Steel’s president of TQM and Steel Business.

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This development could bring some cheer to India’s Steel Authority of India Limited (SAIL), the state-run corporation that has a monopoly in the supply of railway tracks, and some of the domestic steel companies.

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India and Iran recently signed a deal worth U.S. $2 billion dollars for cooperation in the rail sector. The agreement included a Memorandum of Understanding (MoU) worth $600 million that will enable Iran to purchase locomotives and freight cars from India. The new trains in Iran will help transport passengers and freight in Iran.

What’s more, they will also be used in the Chabahar-Zahedan railroad to accelerate development of the Chabahar Port, which will eventually connect to Central Asia and, ultimately, Europe.

Iran had recently announced the launch of the construction of the Mashhad-Zahedan railway. This is part of the plan to connect Central Asia with the Iranian port of Chabahar on the Indian Ocean coast.

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It’s been great going for India’s state-owned National Aluminium Company (NALCO). Its revenues in sale of alumina are up by 30% year-over-year and it has reported a 94% jump in net profit.

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The company has now lined up some new projects.

According to reports, NALCO is said to be contemplating a high-end aluminum products plant by availing technology from foreign suppliers. The project is intended to provide for future applications of aluminum in bullet trains, aerospace and electric vehicles, all three of which are coming to India.

T.K. Chand, NALCO’s chairman and managing director, was quoted as saying that the technology for high end aluminum products plants was not available in India, so Nalco was in talks with potential suppliers in the U.S. and Russia to avail their technologies. The company had already floated an Expression of Interest (EoI) to select the technology supplier.

If successful, the proposed plant is likely to come up within the aluminum park at Angul in Odisha province.

Earlier this month, the aluminum major inaugurated three major projects at a total cost of about U.S. $94 million (Rs 660 crore). One was a bauxite mine, the second a 18.5 MW power unit at alumina refinery, Damanjodi and a nanotechnology-based defluoridation plant at Angul.

The aluminum park that Chand referred to was being developed jointly by NALCO and state-owned Odisha Industrial Infrastructure Development Corporation.

NALCO has signed a memorandum of understanding (MOU) with the Indian Defense Ministry Public Sector Unit Mishra Dhatu Nigam Ltd for the manufacture of high-end aluminum alloys.

Aluminum is not only in the weapons and aerospace sector but also in vehicles (especially electric vehicles).

In an interview with The Economic Times recently, Nalco’s CMD spoke of his plans to make the company a  1-million-ton aluminum player by 2020. He said NALCO’s capacity today was at 4.6 lakh ton, of which, this year, it would be producing around 4.2 lakh (420,000) tons. In 2018-2019, the company planned to ramp up production to 4.6 lakh (460,000) tons. The addition of a new smelter would take it to over 1 million tons for aluminum.

When asked for the reason behind NALCO’s alumina sales volume jumping by 30% year on year, Chand replied that the increase in revenue, particularly in alumina, came because of change in NALCO’s strategy. Earlier, the company would sign a long-term agreement for sale of alumina in the international markets, but it did not give much benefit in case of a rising market. Thereafter, with the market price going up, it had switched strategy of spot tenders. This was what led to the prices increasing from U.S. $280 to as high as $527.

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Growth in volume was also achieved since NALCO was able to achieve a 100% capacity utilization of aluminum refinery.

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Tata Steel has a couple of things going for it in the new year — but before we get into that, 2017 was a bit kinder to it than the preceding two years.

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And we are not saying that, but the CEO and MD of Tata Steel, T.V. Narendran himself, told a gathering of employees and some reporters here recently that 2017 was somewhat better than the previous two years for the company.

Looking Back: A Recovery in Steel Demand, Prices

In 2014, Tata Steel dealt with some of the challenges relating to the closure of its mines because of changes in regulations. The next year, it dealt with the challenge posed by neighboring China, which had increased its export volumes globally (including to India). Tata Steel continued to perform and grow in these two years, Narendran said.

According to him, 2017 saw “a recovery in global steel demand, prices and trade,” leading to better-than-expected performance by India’s steel sector. The year, he added, not only saw India becoming the third-largest steel producer in the world, it managed to successfully reverse the trend of increasing imports, as it became a net exporter.

Narendran was also positive on India’s National Steel Policy 2017, which draws up a long-term road map for steel.

Another point which went in favor of the steel sector, Narendran pointed out, was the rollout of the Goods and Services Tax (GST), which had positive implications across the company’s value chain in India.

The Year Ahead

Tata Steel has big plans for 2018.

Its board recently approved an expansion from 3 million tons (MT) per annum of its Kalinganagar plant in Odisha province to 8 MT. The plant’s expansion will be completed in four years and is expected to meet demand in automotive, general engineering and other valued-added segments. The project will be funded through a mix of both debt and equity, according to the board.

Meanwhile, Tata Steel Ltd has initiated the process of raising U.S. $2.15 billion in six-year syndicated loans as part of its $5.1 billion loan program to refinance its existing debt. It has already appointed a domestic investment bank to manage the issue. The Indian steelmaker is seeking $2.15 billion in six-year syndicated facility to refinance loans in the books of TS Global Holdings Pte and NatSteel Asia Pte on an immediate basis.

Analysts, too, seem positive regarding Tata Steel’s performance in the coming years. Credit Suisse, for example, has maintained an “Outperform” rating for the company.

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Citigroup has said Tata Steel Ltd notes that management had indicated plans to double capacity in five years. Tata Steel’s plans to double capacity in five years providing growth visibility, while attractive M&A and the Tata-Thyssen joint venture could take the stock higher. Strong spreads, captive India iron ore, improving leverage and reasonable valuations should benefit the company, said its analysts.

India’s solar energy plans seem to have run into a spot of a bother.

The Indian government’s target is to boost installed solar power capacity more than five-fold to 100 gigawatt (GW) by 2022.

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The problem, though, is India meets about 85% of its solar cell demand through imports from China, and photovoltaic modules account for over half the costs of a solar project.

Now, the Indian government is left contemplating whether the domestic industry of solar cells and modules manufacturers should be “protected” from cheap imports. In that vein, the government is actively thinking of imposing an anti-dumping duty.

In a related development over last week, the Ministry of New and Renewable Energy has come out with a “concept note” for offering “direct financial support” of approximately U.S. $1.7 billion (Rs 11,000 crore), as well as a tech upgrade fund for solar manufacture. At the same time, it has said cell and module manufacturing capacity in the country is “obsolete.”

The concept note pointed India had installed capacity for producing 3.1 GW of cells and 8.8 GW of modules, but even this capacity was not being fully exploited because of obsolete technology. The Ministry of New and Renewable Energy believes only 1.5 GW of cell manufacture and 3 GW of module manufacture is being used.

Now, as per the concept note, the Indian government aims to provide a 30% subsidy for setting up new plants, while also expanding existing ones. Heavy equipment required to set up projects shall also be exempt from customs duty, according to the scheme to be operated by the Indian Renewable Energy Development Agency.

According to a news report, the Ministry’s note targets creation of solar cell manufacturing capacity of 10 GW over five years and includes interest subvention of 3% to manufacturers, setting up new capacity for loans taken through state-managed banks.

Cheap imports from China have brought down solar power tariffs to record lows, according to the Indian Solar Manufacturers Association. The latter has now petitioned the government to impose an anti-dumping duty on inbound shipments from China.

The concessions that the concept note speaks of are expected to bring down reliance on imports from China.

Already, there is a slowdown in fresh investments in this sector.

In November, tenders for new projects declined by 25% to 300 mega watt (MW) and auction of new offerings dropping by 98% to just 5 MW from levels of activity seen in October. According to the latest solar market update for the third quarter published by renewable energy market tracker Mercom Capital, a total of 1,456 MW of solar power projects was tendered and 1,232 MW auctioned in the period. The figures represented a marked reduction from the activity seen in the second quarter that saw 3,408 MW of solar projects tendered and 2,505 MW auctioned.

Meanwhile, the Directorate General of Safeguards and Anti-Dumping held the first oral hearing last Tuesday to investigate allegations of dumping imported solar cells and modules.

The domestic solar panel manufacturing industry, in a petition, had submitted that around 80% of the market had been taken away by imports. The domestic industry has taken the position that as imports harm the indigenous sector, a retrospective duty should be imposed on the importers. But this was challenged by some solar power project developers, who used the argument that silicon wafers required to make solar cells were also being imported, mainly from China, hence the domestic sector had no choice but to be dependent on imports.

The prices of panels have crashed to $0.32 per kWh from $0.50 per kWh in three years, owing to global over-capacity and “dumping” by China. The tariff for solar power projects has fallen by 80% in six years.

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All of the above could be music to the ears of the consumers … but not to the domestic manufacturers.

India represents one of the biggest automobile markets in the world, with about 3 million petrol and diesel vehicles having been sold last fiscal year.

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That pie is just too lucrative for the world to ignore.

The Players

It’s not only “regulars” such as Honda, Suzuki and Hyundai are planning launches and tie-ups for the Indian market; domestic players like Mahindra and Tata Motors are also around. With the Indian government having announced earlier that the country would move to an all-electric fleet of passenger vehicles by 2030, the timeline is more or less clear.

The most unlikeliest of the pack is Chinese smartphone brand Xiaomi. Indian media reports Xiaomi has “adopted an expansion roadmap revolving largely around plans to sell electric vehicles (EVs) in the country.”

While there was no immediate confirmation from the company itself, The Economic Times report pointed to a recent regulatory filing made with the Registrar of Companies that talked of Xiaomi potentially selling “all types of vehicles for transport, conveyance and other transport equipment, whether based on electricity or any other motive or mechanical power, including the components, spare parts.”

Next on this list is Swedish company Volvo. It announced plans to only sell hybrid, electric and battery-powered cars in India after 2019. Volvo is aiming to sell over 1 million electric vehicles worldwide by 2025, with India being a major target market.

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With steel overcapacity touching a historic high at about 737 million tons (MT), and China adding to new capacity, this remains a huge industry concern.

Not only is the demand-supply market askew, jobs are being lost, especially in the United States, which, by one reckoning, has seen about 35% of steelmaking jobs vanish in the last two decades or so.

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So, when representatives of G20 member states met at the end of November for the Global Forum on Steel Excess Capacity in Berlin and announced they had come to a basic understanding on the need for restructuring of the sector and dismantling market-distorting subsidies to ensure a level-playing field, many welcomed the move.

In the meeting, China and the U.S. may have locked horns — but China’s neighbor, India, on the other hand, seemed more content regarding the developments coming out of the meeting.

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Besides bringing back some cheer to the sector, the latest report by industry monitoring body World Steel Association (WSA) on crude steel production reveals an interesting story.

World crude steel production soared in October, thanks to higher output in China, the U.S., India and Japan.

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While production in the U.S. zoomed by 12% year-over-year in October, China manufactured 72.4 million tons (MT) in the same month, a 6.1% year-over-year increase and 10 times more than the U.S. did that month.

India, on the other hand, produced 8.6 MT of crude steel in October, up by 5.3% to 8.6 MT.

Clearly, the October cheer is positive news, in the sense that the steel sector is making a comeback. The WSA tracks steelmakers in 66 countries globally, representing about 85% of total steel production, and has said in this report that world steel production increased 5.9% year-over-year to 145.3 MT in October.

The China steel story, incidentally, produced nearly half of the world’s steel in October, which indicates a revival of sorts in the growth story there, too.

According to Moneycontrol.com, the downside was reported from Japan, the world’s second largest crude steel producing country. It registered a 1% contraction in output at 8.971 MT in October 2017, compared to 9.060 MT during the same month last year.

During the first 10 months of 2017, Japan’s steel output dropped from 87.442 MT to 87.239 MT, a 0.2% dip compared to the same period last year.

There’s a keen tussle on between the four steel giants (the U.S., China, Japan and India), with the latter already the world leader in stainless steel production and the third largest crude steel producer.

For example, India had overtaken Japan to become the second-largest steel producer in the world after China in 2016, according to the International Stainless Steel Forum. The country’s stainless steel production had gone up to 3.32 MT for 2016, approximately 9% more than the 3.0 MT achieved in 2015. Read more

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Indian industry is in the midst of a mini-crisis — more specifically, a power crisis.

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In fact, both industrial and retail consumers in many parts of the country are reeling from electricity cuts, due to a shortage in supply of coal to thermal plants.

Incidentally, Piyush Goyal, India’s coal minister, was also appointed railway minister recently. The railways transport a bulk of the coal to power plants around the country.

Yet, not much is coming out of the minister’s office regarding the coal shortage. In fact, in his role as coal minister, Goyal earlier declared India’s “independence” from imported coal.

Some time in June this year, the coal secretary announced India did not need to import coal from anywhere in the world, as it had sufficient capacity.

Now, all that seems so far away.

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