4 Steel Insights, July 2015

COnTEnTs

25 | SPECIAL FEATURESteel mills sell asset, recast loans to stay afloatSteel mills examine alternatives to pare high debt levels.

23 | SPECIAL FEATURECRGO steel: A potential growth area for India Indian demand for CRGO is expected to grow at 12 percent per annum by 2022.

36 | EXPERT SPEAKHigh power tariffs add to ferro alloy sector’s woesManufacturers feel the heat due to slump in demand in domestic and overseas markets.

14 | SPECIAL FEATURE Large workhorse furnaces can help India realise ambition Large blast furnaces will offer India the performance it requires.

6 | COVER STORY Karnataka seeks revision in GoI’s mineral auction proposalSouthern state’s plea may be incorporated in MMDR Act via fresh amendment.

18 Mills may slash iron ore imports as domestic supplies go up

21 India okays iron ore supply pact with Japan, South Korea

30 Govt hikes steel import duties to stop dumping 33 US govt to determine dumping duties on 5

countries 34 Monsoon dampens June auto sales 36 Coking coal offers firm up in June 38 ‘Speedy approval must for government housing

policy’ 39 KIOCL moots novel idea to use idle assets 39 Sponge iron prices down sharply 40 Walk in the clouds 43 High power tariffs add to ferro alloy sector’s

woes 44 Steel, iron ore PSUs told to pull up their s(t)

ocks 46 ‘There’s nothing like a good crisis’ 48 Tata Steel Europe: A business remodelled 51 Major ports’ April-May iron ore handling dips

69% 52 JSW Jaigarh to develop Konkan rail corridor 53 Global crude steel output up 2.88% in May

m-o-m 54 JSPL Raigarh creates production record 55 Primetals gets FAC for Acciaierie Venete

blooming mill 57 Moscow-New Delhi collaboration on the cards? 64 Tata Steel UK arm, iron ore prices create buzz 65 Price data 66 Ferro alloy data 67 Production data 70 Import data 72 Export data 74 Consumption data 76 Import-export data

COvER sTORy

Karnataka seeks revision in GoI’s mineral auction proposal

Southern state’s plea may be incorporated in MMDR Act via fresh amendment

Steel Insights, July 20156

Steel Insights, July 2015 7

COvER sTORy

Rakesh Dubey

The state of Karnataka has submitted a revised proposal for the auction of prospecting licences (PL) as

part of the mineral auction process, which is still under consideration of the Union government and could be incorporated in the MMDR Act through an amendment later, said a highly-placed official in the Karnataka government.

Tushar Girinath, Secretary, Department of Mines and Geology, Government of Karnataka, speaking to Steel Insights, further said that as part of the revised proposals, where the mines are concerned, it would have been ideal to have data on quality, quantity and mine as per the United Nations Framework Classification of Mineral Resources (UNFC).

However, since this is not available, and the state government cannot wait for long, it has suggested to the Union government a compromise, whereby it can award a player mining leases (ML) in instances where data is available till G2 and, where data is available till G3, it can award both prospecting license (PL) and a mining lease.

However, Girinath informed that the state government has an issue with allowing both PL and ML, because the availability of G3 data is very scant. He said that in such cases, after the prospecting is done, the state government would have seamlessly transferred the PL to an ML.

But, this would have resulted in losses to the state government because it would have given the PL to a player without adequate information, as a consequence of which the bids would have been sub-optimal or conservative (the players would not have bid aggressively due to lack of adequate information on the mines).

Hence, the state has suggested that the PLs could be auctioned. After the prospecting is done, the PL holder would be given the right of first refusal or compensation. “After all, the PL holder would have invested some money and so he has to be compensated,” he observed.

“Our intention is to auction the PL on the condition that a player who gets the license would enunciate the amount he would charge if he does not want to progress to the ML stage. This could be through an upfront

Karnataka had proposed in the earlier MMDR Act, when the GoI was seeking the state government’s views, that there

should be a country-wide e-auction platform and a regulator who will not only monitor what is happening in Karnataka,

but other states as well, and the information should be available online.

payment or an annual payment linked to production,” Girinath said.

He said these proposals have been appreciated by the Union government and can be taken up later through a further amendment to the MMDR Act.

Girinath also said that, actually, Karnataka had proposed in the earlier MMDR Act, when the GoI was seeking the state government’s views, that there should be a country-wide e-auction platform and a regulator who will not only monitor what is happening in Karnataka, but other states as well, and the information should be available online , in an authentic manner, so that the index can be improved.

Iron ore indexGirinath also revealed that the Indian Bureau of Mines has prepared an index for iron ore prices (which is being further improved), which will be a monthly reference point with the prices changing, not on a daily, but monthly basis.

Dwelling on the proposed changes in the auction process of minerals post the amended MMDR Act, Girinath also made a vital point with regard to price discovery, when asked whether auctioning would be detrimental to sectors that face frequent price changes?

He said the blocks will not be auctioned at a fixed rate but will be linked to the market rate of iron ore and the state will collect only 5-10 percent of the value of the iron ore produced as its share of the revenues. This 5-10 percent share will be benchmarked to the IBM index price or whatever value IBM has fixed for that grade of ore , he further informed. Thus, if the market rate (indexed) of iron ore reduces, then the state’s share of the revenue earned will also go down in tandem.

Thus, whatever revenue is collected in advance will be adjusted when the price

changes at the end of every month and the state will keep on adjusting the price likewise.

At present, there are a total of around 162 mines, with 25 operational ones. But some of the mines have been transferred to the C category. At present, there are 115 mines of which 7 fall on the inter-state border and these are not allowed to operate till the investigations are completed. Of the remaining 108 mines, many are very small with fragmented production limits and will

SC may not hike ore output cap

The Supreme Court may not agree to the Karnataka government’s plea to raise the production cap of iron ore to 40 million tons (mt) from the existing 30 mt.

Tushar Girinath, Karnataka’s Secretary in the Department of Mines and Geology, said the Supreme Court had imposed a ceiling of 30 mt and the state had requested it to make it 40 million tons.

“But since we have not yet achieved 30 million tons, the court may not consider our request. If we do not reach 30 mt, we will not be able to give reasons to the court for 40 mt and so we are trying to first achieve that 30 mt production.” he said.

Last year, the state had achieved around 21 mt. But out of this quantum, 1.5 mt was not taken by the steel makers and lay idle in various yards. Their reason at that point of time had been that the ore had been “highly priced”.

14 Steel Insights, July 2015

sPECIAL fEATuRE

Large workhorse furnaces can help India realise ambition

Tamajit Pain

Prime Minister Narendra Modi has an ambitious vision for India as a country and also for the country’s steel

industry in particular. It has been India’s ambition to achieve accelerated growth for the steel industry. Modi’s vision is to increase production to 300 million tons (mt) per annum by 2025. This is an increase of more than 200 mt in 10 years.

History around the world has shown that steel and progress go hand in hand. For India, the situation will be the same. Steel and prosperity go hand in hand as well. It is a pattern that is repeated everywhere in the world and it will for sure be repeated in India. With India’s recent growth rates and growth potential for the future, the steel industry will have a tough job keeping up. Regardless of whether growth scenarios take India from the current 80 mt capacity to 150 mt, 200 mt or 500 mt, the steel industry will definitely need to keep up. If it doesn’t for a moment, foreign supplies will no doubt be able to fill the gap. This provides supply security for the short term, but definitely not for the longer term. The excess capacity currently in the market might not be there in the future. Therefore, throughout the region, growing economies are building steel industries of their own in order to become independent of foreign supplies.

Apparently, much of the world is waiting to see whether India’s steel industry is able to keep up with its own plans. The world may be expecting another China, but possibly most of the sceptics are only looking at India from outside in. But it needs to be looked at from inside too. Also, there is doubt as to whether we would like to see a second China at all.

When looking from the inside, it is to be noted that India is able to take solid steps ahead. The commitment to expansion is materialising in the shape of modernisation and expansion of projects as well as greenfield ones. The capacity growth achieved by the Indian steel industry in recent years has only ever been surpassed by China. For India to be a “runner up” in this respect, ahead of all other developing and developed economies, is also an admirable achievement.

The Government of India is committed to progress and the Ministry of Steel is committed to expansion. However, plant

Steel Insights, July 2015 23

sPECIAL fEATuRE

Tamajit Pain

Electrical steel, also called lamination steel, silicon electrical steel, silicon steel, relay steel or transformer

steel, is a specialty product tailored to produce certain magnetic properties, such as a small hysteresis area (small energy dissipation per cycle, or low core loss) and high permeability.

The material is usually manufactured in the form of cold-rolled strips less than 2 mm thick. These strips are called laminations when stacked together to form a core. Once assembled, they form the laminated cores of transformers or the stator and rotor parts of electric motors. Lamination may be cut to their finished shape by a punch and die, or in smaller quantities may be cut by a laser, or by wire EDM.

Electrical steel is an iron alloy which may have zero to 6.5 percent silicon (Si:5Fe). Commercial alloys usually have silicon content up to 3.2 percent (higher

concentrations usually provoke brittleness during cold rolling). Manganese and aluminum can be added up to 0.5 percent.

Silicon significantly increases the electrical resistivity of the steel, which decreases the induced eddy currents and narrows the hysteresis loop of the material, thus lowering the core loss. However, the grain structure hardens and embrittles the metal, which adversely affects the workability of the material, especially when rolling it. When alloying, the concentration levels of carbon, sulphur, oxygen and nitrogen must be kept low, as these elements indicate the presence of carbides, sulphides, oxides and nitrides.

These compounds, even in particles as small as one micrometre in diameter, increase hysteresis losses while also decreasing magnetic permeability. The presence of carbon has a more detrimental effect than sulphur or oxygen. Carbon also causes magnetic aging when it slowly leaves the solid solution and precipitates as carbides, thus resulting in an increase in power loss

CRGO steel: A potential growth area for India

over time. For these reasons, the carbon level is kept to 0.005 percent or lower. The carbon level can be reduced by annealing the steel in a decarburising atmosphere, such as hydrogen.

Electrical steel made without special processing to control crystal orientation, non-oriented steel, usually has a silicon level of 2-3.5 percent and has similar magnetic properties in all directions, ie, it is isotropic. Cold-rolled non-grain-oriented steel is often abbreviated to CRNGO.

Grain-oriented electrical steel usually has a silicon level of 3 percent (Si:11Fe). It is processed in such a way that the optimum properties are developed in the rolling direction, due to a tight control (proposed by Norman P. Goss) of the crystal orientation relative to the sheet. The magnetic flux density is increased by 30 percent in the coil rolling direction, although its magnetic saturation is decreased by 5 percent. It is used for the cores of power and distribution transformers. Cold rolled grain-oriented steel is often abbreviated to CRGO.

CRGO is usually supplied by the producing mills in coil form and it has to be cut into “laminations” which are then used to form a transformer core, which is an integral part of any transformer. Grain-oriented steel is used in large power and distribution transformers, and certain audio output transformers.

CRNGO is less expensive than CRGO, and is used when cost is more important than efficiency and for applications where the direction of magnetic flux is not constant, as in electric motors and generators with moving parts. It can be used when there is insufficient space to orient components to take advantage of the directional properties of grain-oriented electrical steel.

CRGO: World scenarioThe CRGO market capacity in the world is estimated to be around 3 million tons per annum (mtpa), according to official estimates by the India’s steel ministry. The capacity is mainly located in CIS, Japan, South Korea and Europe. Over half of the global demand is from developing markets in China, India, Latin America, Middle East and others.

Official estimates state that demand is expected to grow at 3.7 percent CAGR up to 2020.

Currently, only 11 players have the

Steel Insights, July 2015 25

Steel Insights Bureau

India Inc is staring at yet another quarter of dismal financial performances but a turnaround may not be far away. The

numbers hint that though sales and profit performance may be muted for the June 2015 quarter, it would be better than that in the quarter ended March 2015 when growth had dipped to the lowest since June 2013.

Net sales of the Nifty50 companies are expected to drop marginally by 0.8 percent at the aggregate level for the April-June, 2015 quarter from the year-ago level. Net profit is expected to grow by just 0.3 percent.

The commodity and currency related headwinds would be lesser this quarter and the one-time charges experienced by few large companies are probably behind. On the back of these factors, the April-June, 2015 quarter results are expected to be marginally better than the Q4 of last year, said analysts.

However, we may not see a broad-based growth in the topline as was expected earlier, they added.

The country may have another quarter with weak earnings but the economy has started moving on the path of recovery with industrial activity picking up gradually. Investment activity is expected to gain further pace on account of the increased government expenditure, especially in road development projects. Inflation too is expected to remain within the RBI’s target range, owing to low increases in rural wage rates and the minimum support price (MSP), as well as modest global commodity and crude oil prices, according to analysts.

Financial year 2015-16 (FY16) would be a tale of two halves. The first half would be muted in terms of financial performance with indications of a pick-up in ordering activities from road, transmission and distribution (T&D), government projects as well as segments like MHCV sales reviving in anticipation. In the second half, those

Steel mills sell asset, recast loans to stay afloat

lead indicators should start reflecting in the financial numbers in a gradual fashion.

Analysts are of the view that weak demand and lower realisation would impact earnings of metals and mining companies. Poor steel demand would hurt Tata Steel and NMDC. Coal India may report flat numbers despite higher sales volumes due to lower realisations from the e-auctions .

Similarly, automobile companies, a direct consumer of steel, are expected to report an average profit growth of 7 percent in the April-June, 2015 quarter, excluding Tata Motors since its performance no more reflects the situation in the domestic auto market as over 95 percent revenues come from the overseas markets. Sales of automobiles as well as two-wheelers and tractors slowed down as rural purchasing power dipped. But, heavy commercial vehicles sales (primarily trucks) continued to grow at 20 percent .

The capital goods sector, another major consumer of steel, is expected to report positive earnings largely on account of a low

sPECIAL fEATuRE

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Steel Insights, July 201578