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| JANUARY 2004 | |
| From the CEO's Desk | |
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The recently held
‘4th Asian Steel Conference’ discussed many issues facing the industry.
Participation from ‘China Iron & Steel Association’ (CISA) and ‘South
East Iron & Steel Institute’ (SEAISI) added a lot of value and
participants benefited from the views expressed by these representative
associations. They could understand the present status, future prospects of
the steel industry in these regions and more importantly, the present ‘mood’
of the business community there. Further, active participation from Ministry
of Steel (Govt of India) also enabled the delegates to interact directly
with the policy makers and helped them to understand government’s view on
many important industry matters. D.A.Chandekar
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| Headlines | |
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Steel Price move up by Rs 1,600/tonne Steel companies have hiked prices across product categories by Rs 1,400 to Rs 1,600 a tonne, depending on the size and weight of the product. The price increase of about 7% has been blamed on increased input costs. Costs of raw materials like iron scrap, sponge iron and coal have almost doubled in the last nine months. Industry experts expect prices to firm up even more in the future, with a Crisil steel industry outlook predicting that HRC prices in the medium term will stay above $280 a tonne. Steel prices are following a global trend and are going up in tandem with international prices. Global HRC prices, that were $285/tonne in December’02 moved up to $320/tonne in December’03. The higher input costs have impacted the non-integrated players like Essar and Ispat more than primary steel makers like Steel Authority of India (SAIL), Tata Steel and Vizag Steel. According to Industry source the increased input costs have not been completely passed on to the customers. Higher prices will result in improved realisations for the primary producers. Meanwhile, alloy and special steel producers have also been impacted by the increase in input costs. Met coke prices have increased 140% from Rs 4,885/tonne in April '02, to Rs 11,650/tonne in December’03. Alloy steel industry caters mainly to automotive, engineering and railway industries. Stainless steel price of nickel, ferro chrome and molybdenum keep going up. Galvanised steel producers like Jisco have already hiked prices in anticipation of the increase in HRC prices. Prices have moved up by about Rs 1,400 to Rs 1,600 a tonne, according to Jisco's Joint Managing Director and CEO Raman Madhok. Zinc and HRC are the primary inputs for galvanised steel makers. Prices of both these commodities have gone up, according to him. Meanwhile, major steel consumers like auto companies have already braced themselves for the price hike. Tata Motors and Maruti are expected to announce new prices for their vehicles shortly. White good makers and others may follow suit. |
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FIIs increased Tata Steel stake by 6% in third qtr Foreign institutional investors (FIIs), led by Janus, have scaled up their holding in Tata Steel by more than 6 per cent over the last quarter. The shareholding filed with the exchanges at the end of December indicate that Janus Worldwide Fund picked up 1.76 per cent stake and Janus Special Equity Fund acquired 1 per cent stake in the company. But Janus was not alone, as the total FII holding in the company stood at 12.43 per cent compared with 6.31 per cent stake at the end of September. Total institutional holding domestic and foreign increased from 33.17 per cent stake to 36.38 per cent stake in Tata Steel, which implied that domestic insititution investors reduced their stake to some extent. Promoters’ holding in the company remained almost unchanged at 26.29 per cent. Market sources said the fact that foreign funds acquired shares from the market was evident from the scrip movement over the past month. Tata Steel scrip moved up from Rs 269 at the beginning of the quarter to Rs 445 at the end of December. |
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Rising Steel Prices impacting cylinder makers Spurting steel prices on one hand and the arbitary nature of tenders floated by oil companies on the other, are posing serious problems for over 100 cylinder manufacturers across the country, according to industry sources. And the news of another round of a hike in steel prices from January’04 is literally sending shivers down the spines of many manufacturers, who have set up their units in the small-scale sector with an investment of around Rs 2.5 crore per unit, the sources say. They set up their units mainly to manufacture and supply 14.2 kg-LPG cylinders to oil companies like IOCL, BPCL, and HPCL. It is estimated that the public sector oil companies require around 1.5 crore cylinders per annum, but the 100 cylinder manufacturers have created capacities to manufacturers 4.5 crore cylinders per annum. The going had been relatively good for them upto year 2000. However, the introduction of the tender system in the procurement of LPG cylinders in ’01 has made the going very tough for them. The tender system has created intense competition among the manufacturers for bagging contracts, resulting in a drastic under-cutting of prices and hardly any profit margin. And, as if to make our cup of woes full, the prices of steel are shooting up over the last six months or so, according to BS Reddy of Kurnool Cylinders. He said the price of special grade steel, which was around Rs 19,200 per tonne last month, Jumped to Rs 20,200 per tonne this month, and is set to spurt to Rs 21,700 per tonne in coming January. The cost of steel constitutes more than 70% of our cost of production. So, how can we absorb such sharp rise in steel prices ? he asks. The cylinder manufacturers also complain that the oil companies set the tender regulations in a very dificult manner, and transfer virtually each and every risk onto the manufacturers. Indian Oil is the worst among the oil companies. It imposes a penalty clause for us at the rate of 0.5-7.5%, if we fail to deliver the cylinders on time. But, it refuses to include the price escalation clause in the tenders to cover our risks, according to Rajeshwar Rao Gampa, Managing director of Sri Kanyaka Parameshwari Engineering. |
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Stainless Steel prices to go up Domestic stainless steel prices are about to increase by Rs 5,000 – 7,000 per tonne for low-end grades and Rs 12,000-15,000 per tonne for high-end products. This will be the steepest increase in stainless steel prices in the past eight years. According to Industry sources, the reasons behind the sharp increase were two-fold. There had been a sharp increase in cost of raw materials like nickel. Strong demand for the metal, and expectations of further rise in demand, was the second factor. Recently nickel prices had increased from $12,000 per tonne to $15,000 per tonne. Export price of stainless steel would also increase accordingly. The prices of High-end export products were expected to go up by Rs 14,000-15,000 per tonne, as high end products had higher nickel content. On the demand front, projections suggested that the demand in China would continue to increase. Sources said, China consumed around 230 million tonne of steel, of which stainless steel was around 3.2 million tonne. The potential for further growth was huge. China’s own stainless steel production was 1.3 million tonne. New capacities there were not expected to come on stream before 2005-06. Till mid-1900’s, USA and Japan were the two major stainless steel markets with a combined volume of 3.7 million tonne. In 2002, China alone consumed 3.2 million tonne. According to sources, given the similarities in development of Japan and China, going forward, demand was expected to grow at a rate of 9-10 per cent per annum. Current projections showed that the demand estimated in China would increase to 12-12.5 million tonne, by 2017. India exported 2-3 lakh tonne of stainless steel last fiscal. The industry was looking at 15 per cent export growth year – on – year for the next 3-4 years. In the domestic market also, the stainless steel industry was expecting rapid growth, Indian Army was considering using stainless steel in its upcoming Project Primrose, which would build tens of thousand of dwelling units for army personnel. The stainless steel industry was also lobbying to increase stainless steel usage in railways, metros and new airports. The mood in the industry was reflected in the stock market, as well. The shares of Jindal Strips, the market leader, recently touched a 52-week high of Rs 486 on the Bombay Stock Exchange (BSE), the scrip increased 1.6 per cent and closed at Rs 475.55. |
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Duty
cut on steel may force local companies to reduce prices
A 5% cut in customs duty on steel will force domestic steel makers to roll back their latest, Rs 1,000-1,500 per tonne price hike effected from December 31,’03. The latest round of price hike has put domestic steel prices at par, if not more than, the landed cost of imported steel. With chances of an early election, the government is preparing for some ‘out-of-Budget; policy changes like a cut in steel tariffs prior to a vote on account. After a few rounds of meetings between steel makers and key customers lobbies, the government is considering a 5% cut in steel tariffs from a peak level of 25%. With international hot rolled coils (HRCs) trading at about $360-380 per tonne (C&F), the landed cost of basic grades of imported HRC works out to just over Rs 22,500 per tone including various other costs. A 5% cut in customs duty will straight away have an impact of $20 per tonne (Rs 900) on the landed price. Comparatively, with the January 1,04 price increase of Rs 1,000-1,500 per tonne of HRC, domestic steel prices are trading at around Rs 23,000-24,000 per tonne, With a 5% duty cut, steel companies will have no option but to roll-back prices or offer discounts in the domestic market unless international steel prices see a fresh round of increases. At present, domestic players are banking on the addition in cost for inland transportation for non-port based customers to risk a higher domestic steel price than the landed cost of imports. For long-term customers with annual contracts, the prices are however, still marginally lower than landed costs of imported steel. Even for long products like billets, a basic saleable steel for re-rolling construction grade steel, the landed cost of import works out on par with domestic price of about Rs 16,000 per tonne with billets prices in China market hovering around $290-300 per tonne (C&F). However, faced with rising input costs, domestic steel companies are hoping that HRC prices will cross $400-410 per tonne levels for March’04 deliveries and hit the roof by mid-’04 to even cross historic highs of $450 per tonne. A stronger dollar coupled with rising steel prices will give the additional support to domestic prices even at lower levels of import duty protection. Over the next two years, domestic steel companies will have to face the reality of WTO-driven tariff levels wherein India has to reduce customs duty to less then 10% by’05-06. |
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Rashtriya Ispat seeks govt nod for public issue The recent boom in stock markets impact seems to be rubbing off on public sector undertakings too. Top management at the public sector Rashtriya Ispat Nigam (RINL), Visakhapatnam Steel plant, is planning to go to government for permission to go in for a public float sometime early ’05. The steel giant that had been sick for some time but has made a dramatic turnaround now, is faced with the task of raising up to Rs 2,500 crore to expand capacity from the current 3.5m tones per annum to 5m tones by the year’07-08. The proposal currently being worked out by the top brass will be presented for approval to the board and thereafter to the government. We expect the approval for the IPO from the government by March. However, the details of the size of the proposed issue or its timing is not yet known. Though we have the capacity to raise most of the money from internal resources, we are also keeping the option of a public float open. The public issue, if approved, should hit the markets by early next year, according to the source. VSP has chalked out an ambitious expansion plan to take the rated capacity from the present 3.5m tones of liquid steel, to 5m tones by’07-08 in phase I. In the phase II it plans to invest an additional Rs 6,800 crore to take capacity to 6.8m tones by 2011-12. In the phase III it will invest up to Rs 8,000 crore to take the total capacity to 10m tones to include flat products also by’02. The plant is now operating 17-18% over the rated capacity. The investment for the additional 1.5m tones in phase I will cost Rs 2,500 crore. The confidence to go for an IPO stems from the fact that the public sector steel giant, which was in red till recently has finally turned the corner becoming a zero debt company last quarter after posting a net profit of Rs 521 crore for’02-03. By March’04, we will wipe off upwards of Rs 1500 of our accumulated losses, according to the source. The company is hoping to end ’03-04 with a net profit of Rs 1100 crore on a turnover of around Rs 6000 crore. It has posted a net profit of Rs 5059 crore last year. The market is good and we have put in place all the strategies for an upward trajectory, a senior board level source said. According to market analysts, steel stock have been in demand over the past two quarters and will continue to be so for some time to come. Buoyed largely by a revival in key industrial sectors and opening international markets, many of the shares have hit their 52-week highs. The government has stated its intention to encourage capacity increase to 45m tones by 2010 from the current 32m tones, This will mean that new players will come into the market and existing ones will expand. Therefore to remain competitive, VSP too will have to speed up its expansion plans that have been hanging fire for quite some time now. |
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JVSL
debt restructured
The Sajjan Jinal-controlled Jindal Vijaynagar Steel (JVSL) has renegotiated Rs 400 crore debt with a foreign lender, which has waived interest and 50 per cent of the principal amount. This has resulted in a savings of Rs 226 crore for JVSL. JVSL is now in talks with Unit Trust of India for the settlement of outstanding dues of over Rs 600 crore, bearing a high interest of 14 per cent. UTI was out of the corporate debt restructuring committee of financial institutions. According to Senior JVSL executives, they had renegotiated a part of their total foreign debt with foreign lender and had signed an agreement in October. As per the revised debt scheme, JVSL will be making 17 monthly payments of Rs 10 crore each to the foreign lender, in lieu of which interest on the Rs 400 crore loan has been waived off along with the waiver of 50 per cent of the principal amount. The loan had an interest rate of 8 per cent. Also on the cards are similar negotiations with some other overseas lenders. However, the company officials said that it was too premature to comment on the details of the negotiations. The company has also received sanction letter from UTI for the settlement of outstanding debt amounting to Rs 603 crore. Company executives said that the restructuring of the UTI loan is likely to come through within this quarter but decline to comment further. With this current round of restructuring, the hot rolled coil maker’s outstanding debt of Rs 6,000 crore as on March 31,2003, will reduce significantly. While Rs 800 crore of debt has been converted into equity and preferential shares, the company has been swapping a major portion of its high cost debt with low interest loans and thus saving a lot of money. |
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LN Mittal group setting up $100m steel unit in China Close on the heels of its green-field venture in China, the LNM group belonging to the London-based NRI Lakshmi N Mittal, is looking at plans to expand its presence in China. The LNM group, the world’s second largest steel group and highest global steel producer with presence across four continents, announced that it will be investing about $100, to set up a 4 lakh tonne cold-rolled and galvanizing unit at Yingkou in Liaoning province, south of Northeast China. The unit will be 100% controlled by LNM Holdings, a subsidiary of the LNM group. According to top officials associated with the LNM group, the Chinese steel market is growing quickly and so is its production capacity. It has an attractive growth potential and we (LNM group) hope to increase our presence here over time. Being the largest global steel producer, we will consider any interesting or appropriate opportunities as they arise. According to LN mittal, China has been the most dynamic driver of steel industry’s growth over the past year and will remain so over the next decade. As the world’s largest, it is natural for us to seek to build a presence in the region. LNM Holding is the largest importer of steel into China and has its presence in China through three sales offices located at Beijing, Guangzhou and Urumqi. In ’03 LNM Holding imported approximately 2m tones of steel into China. The move to enter China with a CR plant comes within a couple of days after China slapped steep anti-dumipng duty on five countries – Russia, Kazakhstan, Ukraine, South Korea and Taiwan – till September’08. |
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Steel firms see further duty cuts Though recent duty cuts, announced by Finance Minister Jaswant Singh, is unlikely to have an impact on steel prices, steel companies, fear that the Customs duty on hot-rolled steel might be cut by another 5 per cent, in the coming months to 15 percent if prices continue to go up. The government reduced the peak rate of Customs duty from 25 per cent to 20 per cent. According to the Indian steel Alliance (ISA) sources, decision to this effect can be taken by the government after the Lok Sabha elections. It is learnt that the Indian Steel Alliance has assured end-users that prices will not be raised for the next three months. A meeting of ISA functionaries and end-users will take place on January 16. It is worth nothing that several proposal mooted by ISA to the Union steel ministry – like rollback in peak Customs duty to 5 per cent, removal of the 4 per cent special additional duty, a 5 per cent reduction in the import duty on nickel and coal – were met in mini-Budget. Reiterating that duty cut would result in hot rolled steel prices going down, steel makers pointed out that the global supply situation was tight and hot-rolled steel was not available at throwaway prices for imports. On its turn, the Cold Rolled Steel Manufacturers Association of India (CORSMA) wrote to finance minister Jaswant Singh demanding the import duty on hot-rolled coils be reduced to 10 percent, citing a shortfall of 1million tones in the availability of the commodity. Expecting that the announcement would hold the prices, CORSMA director SC Mathur said import of hot-rolled steel would increase by at least 5 per cent. Imports were expected to rise after about three months. Meanwhile, Jindal Stainless ltd., an OP Jindal Group company and the country’s largest producer of stainless steel, today said the reduction in the import duty on nickel coupled with the removal of the 4 per cent special additional duty could improve its bottomline by up to Rs 20 crore per annum. After rising from $8000 per tonne to $15,000 per tonne, nickel prices seem to be stabilising now. Duty cuts will help us become more competitive, according to Jindal Stainless director (finance), Arvind Parakh. |
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China Follows US, scraps steel tariffs China scrapped retaliatory tariffs on steel products, in place for 12 months, today in a widely anticipated response to a welcome US move to drop tariffs on imports of the metal this month. In response to the latest developments in steel trade, the Ministry of Commerce has decided to terminate its safeguard steps, starting December 26, the ministry said in a statement. Market experts had foreseen the move. Washington declared safeguard tariffs of up to 30 per cent on steel imports in March 2002, among to protect local industry. Beijing then retaliated by slapping temporary tariffs of up to 26 per cent on imports of some steel products, including thin plate steel and cold-rolled thin stainless steel, in November last year, saying they would last three years. Those products accounted for up to 40 per cent of the 17 million tones of steel China imported in 2002. The US move was believed to have limited impact on Chinese steel makers, which export tiny amounts, but top Chinese steel firms, including Baoshan Iron and Steel Co Ltd. Had welcomed the move as a boost to their bottom lines. Official figures showed Chinese producers exported a combined 5.6 million tones of steel, mainly to Asia and Europe, in the first nine months of 2003 only about three per cent of the country’s total output of 170 million tones over the period. Still, yielding to international pressure, US president George W. Bush scrapped most of the tariffs this month – 16 months ahead of schedule – thus averting a potential trade spat that threatened to strain ties with Europe and Asia. Analysts have said China’s cancellation of the retaliatory tariffs could invite an influx of steel that could exert some pressure on domestic prices. China, the world’s top steel producer and consumer imported 30.5 million tones in the first 10 months of 2003. |
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LOI
Thermprocess wins major bell-type annealing plant Firma China Steel Corporation, Kaohsiung, Taiwan, has awarded LOI Thermprocess GmbH a major contract for the supply of a bell-type annealing plant with 20 annealing bases, 11 heating hoods and 7 cooling hoods. The plant, which will feature the tried and tested bypass cooling system, is to be designed for a maximum coil diameter of 1880 mm, a maximum stack height of 4650 mm and a charge weight of up to 90 t. The fuel will be coke oven gas. The plant is to be used for annealing thin steel sheet and five units will be designed to allow high-temperature annealing at temperatures up to 850°C. The bases will be controlled by Type ATS 700 base control units. These 19" modules will be linked to a higher-level process control system via TCP/IP. The benefits of these control systems include rapid replacement, even during an annealing cycle, a large colour display and easy-to use operator interfaces. LOI has been supplying base control units for bell-type annealing plants for more than 25 years. The different generations are interchangeable, making it easy to upgrade control systems at a later date. In total, LOI has delivered about 1800 base control units to customers throughout the world. |
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| CHINA recently slapped up to 55% anti-dumping duty on imports of cold rolled and hot-rolled products from Russia, South Korea, Ukraine, Kazakhstan and Taiwan. The measure will applicable till September’08 and may be the warning bell for checking heavy Indian steel shipments to China. | |
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China
steel body says imports to continue
The China factor will continue to impact the global steel market in a positive, way at least for the next few years. The China Iron and Steel Association (CISA) has assured that the country’s new production capacities will feed the domestic consumption and China will continue to be a net importer of steel, in the coming years. The association’s remarks came in the wake of claims made by World Steel Dynamics, the leading US-based information services, that China’s unstoppable steel industry will pose a threat to other countries’ steel sectors over the next 10 years. CISA defended that in contrast, China’s exports had been soaring, which eased trade conflicts across the globe. According to statistics, China’s steel exports now account for 3 per cent of its total steel production and will not jeopardize any other country’s steel industries. The association has forecast an annual consumption of 330 million tonne by 2010, up from 210 million tonne last year. The association reiterated that production growth will continue to mainly depend on the domestic market. The main target of China’s steel industry was to increase shares of the locally made steel products on the domestic market, not to aggressively export. Back home, industry sources felt, while there may be a slowdown in Chinese buying of carbon steel, the value added products primarily, galvanized and stainless steel would find takers, China which was perceived to be a threat by India had now become an opportunity they said. Last year, India exported around one million tonne to China and at the end of 2003 the figure would be around two million tonne. |
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LNM
may take over a small polish steel mill
Anglo-Dutch steel producer LNM is one of two firms short listed to privatize Poland’s Czestochowa mill, according to a reliable source, a day after the government said Ukraine’s Donbass Industrial Union was the other bidder. Polish officials have said they shortly hope to pick a buyer in the deal, which local media value at up to 350 million zlotys ($95 million). LNM recently signed a $ 1.1 billion agreement to buy Poland’s top steel producer PHS as part of its aggressive Central European expansion plan, which includes recent acquisiton in the Czech Republic and Romania. Donbass recently bought Hungary’s Dunafter steel mill for about $615 million, and has said Dunaferr and Czestochowa would give it a valuable foothold in the European Union when Poland and Hungary join the trading bloc in May. By importing semi-finised products from its Ukrainian mills for final processing at Czestochowa or Dunaferr, Donbass could avoid some of the tariffs on Ukrainian steel, analysts say. |
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