Author Archives: Sohrab Darabshaw

Indians may not be great consumers of aluminum, but sector analysts and the industry expects all this to change in the long term.

The per capita consumption of this metal in India is about 1 kilogram (2.2 pounds), as compared to about 10 kilograms (22 pounds) in China and 30 kilograms (66 pounds) in Europe. However, consumption is bound to grow from this low point, especially when demand from the power sector goes up.

India’s aluminum players like Hindalco, India’s second-largest producer, and the government-run National Aluminum Company Ltd. (NALCO), compared to their competitors elsewhere, hold a distinct advantage because of the benefits derived from their backward integration.

What also helps is the fact that India has the fifth-largest bauxite reserves in the world, with deposits of approximately 3 billion tons. Indian producers also benefit from their proximity to bauxite mines, captive power plants and comparatively cheap labor.

Sensing the slow but perceptible shift in the market mood and the positive long-term outlook, NALCO has some bullish plans lined up for the mid term. One is the setup of two aluminum smelters in India and abroad. Incidentally, NALCO is on the Indian government’s ‘navratna’ list (nine gems), which is a list of Public Sector Units (PSUs) doing extremely good business despite being state-owned. Its aggressive growth plans, though, will need some cash infusion.

Last week, the Indian government’s Press Information Bureau had issued a press note on behalf of the Minister of Mines Dinsha J. Patel, explaining NALCO’s expansion plans, which include:

• Alumina refineries in the state of Andhra Pradesh and the western state of Gujarat

• An aluminum smelter and power plant at Sundargarh in the state of Odisha

• Alumina refinery and wind power plant in Andhra Pradesh

In a recent interview with Moneycontrol.com, B.L. Bagra, NALCO’s CMD and finance director, also touched upon this PSU’s growth plans. In the same interview, he had expressed some concern over the dropping prices of aluminum on the London Metal Exchange (LME) recently, as well as the increase in the prices of raw materials necessary in the production of aluminum.

LME prices had recently dropped below the psychological barrier of $2,000 per ton. Bagra had said LME prices, going southwards, had caused some concern at NALCO. But, he said, these losses were being overcome partially by the premiums on the company’s export tenders, which he said, had over the last two months increased almost by 100 percent. NALCO’s tenders serve as a global price benchmark.

Continued in Part Two.

Following on Part One of this story, the impact of the falling rupee may be more visible on the import of coking coal. India as of now is the 3rd largest importer of coking coal. As per some estimates, the Indian steel industry will need to import 36.8 million tons of coking coal in 2012 to meet estimated steel demand of 58.7 million tons.

Compared to last year, the international price of coking coal is down this year.

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For the past six months or so, the Indian steel sector has been buffeted about by one negative development or another.

In the throes of a mining scam leading to a clampdown on iron ore mining and a subsequent shortage of good quality ore, the industry now finds itself battling possible higher import bills due to a falling Indian rupee.

And the weight of the rupee against the dollar has a direct bearing on the cost of steelmaking.

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Although JSW Steel reported historically high production numbers, they’re not without their troubles, while Tata Steel reported a huge profit decrease recently. So what exactly are the drivers for Indian steelmakers’ current woes?

Tata Steel Chief Financial Officer Koushik Chatterjee told reporters that the high raw material cost and volume impact had negatively impacted domestic operations.

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Sohrab Darabshaw contributes an Indian perspective on industrial metals markets to MetalMiner.

Players in the Indian steel sector continue to paint an optimistic picture in the medium-term, despite some recent negative developments in the steel industry. They are also looking at new avenues for selling steel, domestically and internationally.

On the other hand, investors and industry experts continue to watch the Indian steel story with caution, preferring to see how the script unfolds in the coming days before making a call.

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MetalMiner welcomes guest contributor Sohrab Darabsha, who covers industrial metals markets from an Indian perspective.

While China has already managed to install excess steelmaking capacity, India is struggling to meet its internal demand, which is set to grow by about 8 percent in 2012. There are many reasons for India’s inability to meet its own internal consumption:

1) Expected shortage in raw materials supply

2) Uncertain economic outlook

3) A major scam involving mines in some parts of the country

4) Uneven import-export policy

There is a real chance that the steel script for India could go wrong if the government does not implement remedial measures soon. Steel producers, industry experts and research advisory groups have sounded enough warning bells. There are still many hurdles in the path that steel producers need to clear to help India achieve its set goals.

One of them is a drop in production in the wake of the illegal mining scams. Industry experts fear raw material for steel production, especially iron ore, in some states will soon run out. The reason: The scam has led to a freeze or curtailment of further mining activities until investigations are over.

India is a very large exporter of iron ore but this too is expected to fall to a new low this year, by about 25 percent, because of shortages in the Indian states of Karnataka, Odisha and Goa, high export duties and differential railway freight. The governments of Odisha and Goa have restricted the movement of ore. The government of Goa is not giving clearance to lift dumps containing 48-52% iron-grade ore. The State of Odisha accounts for about one-third of the country’s iron ore output.

The mining scams seem to have become the biggest headache for the Indian steel sector. Legal cases in India have a tendency to drag on for years. The biggest mining scam has taken place in the State of Karnataka, which accounts for at least 24 percent of the country’s steel production. The scam here involving the former chief minister and others led to a clampdown on mining activity in Karnataka. But letting the government-owned National Mineral Development Corporatin (NMDC) extract a maximum of one million tons of iron ore per month has alleviated the situation somewhat.

While investigations are ongoing, private steelmakers in this state are still having sleepless nights, since there are only about two months of iron ore supplies left. One news report here suggested that over half of the sponge iron makers in Karnataka had already shut shop, while the rest have approached the Supreme Court of India with the plea that iron ore mining be resumed as early as possible.

Iron ore for now is available in stockpiles, but these are of low grade. And as any industry expert will tell you, low-grade ore means slow damage to the blast furnaces. So, if no relief comes from the Court soon, the steel industry (at least in Karnataka) will be severely affected, cutting into the nation’s overall steel production. The total steel capacity in Karnataka is 16 million metric tons, and of that 3 million tons is sponge iron. Most of this sponge iron production has been shut down and steel plants are running at low capacities.

There is some hope on the horizon though, because last month the Indian Mines Minister Dinsha Patel had told reporters that he believed iron ore production by privately owned miners in Karnataka state would most likely resume in July 2012.

 

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