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| FEBRUARY 2005 | |
| From the CEO's Desk | |
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Indian steel industry has reached a crossroad, perhaps the the most crucial one in its life of around 100 years. Let me elaborate my point a bit. Today, per India's capita steel consumption is around 31 kg. Everyone argues that since we have one of the lowest consumption rates, we have tremendous potential to grow in future. Yes, I agree and I think the time has come when we all are going to witness that 'Longest Leap'. If somebody tells you that India's per capita steel consumption will reach to around 100 kg by 2015, would you agree ? I would tend to agree. This simply means that we have to add around 7 to 8 million tonnes per annum capacity every year starting from 2006. Considering the fact that so many green and brown field projects are comming up, this seems possible. Also, we all have noted that 'Infrastructure' has taken a central seat in country's economy which will provide the required impetus to this growth on a sustainable basis. Considering this eventuality, there are two questions which come to my mind. One - Are there enough raw materials available in the country ? Two - Is there enough financial capital available in the country ? The answers to these questions will decide the structure of Indian steel industry in 2015. If raw material linkages are not effectively geared up for this expected capacity increase, this opportunity may be grabbed by other countries. Secondly, if there is limited fanancial capital in the country, the ownership of Indian steel industry may not remain 'Indian'. This is the 'crossroad' I am talking about. Already, overseas investors have started setting their eyes on specific locations in the country. They feel that apart from catering to domestic demand, India can be used as a production base catering to entire SE Asian demand in next couple of decades. Even the consumption in gulf region is going to exceed their production capacity in coming years. If our existing steel plants do not expand their capacity to the tune mentioned above, the new capacities will be created and today precisely this is happening in the states like Chattisgarh, Jharkhand and to top the list, Orissa. D.A.Chandekar |
Super
Castings |
| Headlines
Sail targets 9 pc hike in domestic sales Nagpur ICD for unshredded metal scrap imports VSP to increase internal supplies Steel companies fear availability of iron ore after Posco’s entry Siscol plans Rs 400-cr capacity expansion Finance, a major problem in steel capacity expansion Customs duty on alloy steel may be cut to 5% Bokaro Steel Plant output to go up by 25% this fiscal Posco chooses Orissa over Brazil ThyssenKrupp, Steel Cos to research low-CO2 technologies Nippon Steel, BlueScope to team up in steel sheet ops Japan’s January crude steel output increases 1.9% Brazil’s Bradesco Bank reduces stake in Belgo-Mineira Steel |
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Sail targets 9 pc hike in domestic sales Steel Authority of India Ltd (Sail) will now be concentrating on extending sales in the domestic markets due to rising demand here. The company will be selling approximately 9.6 million tonnes of steel in the domestic market during the current financial year (2004-05) against 8.8 mt in the last fiscal. The public sector steel major will be registering a growth of 9 per cent in its domestic sales against the average growth of 7-8 per cent of the Indian steel sector. Despite this robust growth in the current financial year, Sail will be just failing to meet its internal domestic sales target, pegged at 9.7 mt, because of the coking coal shortage it suffered at the beginning of the current fiscal. This was beyond the control of the company, the company sources said. All the four integrated plants of Sail suffered from coking coal shortages in the first two quarters, but these units were fast making up in the second half of the year. The difference between the internal target and actual performance is only 0.1 mt. Sail had re-oriented its production and marketing strategies to cater to the growing demands of the domestic industry. In the last quarter, the company was expecting a 10 per cent growth on a year-on-year basis. Because of judicious use of production facilities and appropriate product mix the company was able to generate approximately Rs 500 crore of extra revenue during the first nine months of this year. The company had increased its direct sales to customers by passing the trading channel. From 75 per cent the proportion had increased to 83 per cent and the ideal level was 85 percent. During the current financial year, Sail had succeeded in reducing the share of semi-finished products in its total output and in increasing that of value added items. As a result, the share of finished steel in Sail’s total sales had increased to 89 per cent from 86 per cent. The company registered growth in almost all sectors. TMT bars grew by 30 per cent; hot-rolled products by 15 per cent; sales to governmental and public sector bodies by 24 per cent. |
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Nagpur ICD for unshredded metal scrap imports Unshredded metallic scrap could now be imported through Inland Container Depot (ICD) Nagpur, making this the 18th port eligible for such imports. The Government had last year revamped the import policy on metallic scrap and specified 15 ports for importing scrap in unshredded and loose form. Following representations, the Directorate General of Foreign Trade had in December 2004 added ICD Ludhiana and ICD Dadri, Greater Noida to the list of 15 eligible ports. The main purpose of adding the two ICDs was to take care of the congestion situation at the Jawaharlal Nehru Port Trust. As much as 92 per cent of the metallic scrap imported (in volume terms) are in unshredded form. Metallic ferrous ores and metal scrap imports during 2003-04 stood at Rs 5746 crore (Rs 5022 crore during 2002-03). The 15 ports that were initially specified as eligible ports were Chennai, Kochi, Ennore, JNPT, Kandla, Mormugao, Mumbai, New Mangalore, Paradip, Tuticorin, Vishakapatnam, ICD Tughlakabad, Pipava, Mundra and Kolkata. |
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VSP to increase internal supplies Rising domestic demand has forced integrated steel producers to increase internal supplies vehemently. Rashtriya Ispat Nigam Ltd (the Visakhapatnam steel plant) has increased its domestic sales considerably and cut down on its exports during the current financial year, in tune with Government policy, the Chairman and Managing Director, Y. Siva Sagara Rao, has said. At a press meet recently, on the eve of RINL Formation Day, he said the company was set to achieve a sales turnover of Rs 7500 crores by the year-end. Exports would be to around Rs 250-300 crore, registering a downtrend, but domestic sales would have increased considerably. The overall growth rate in the sales turnover would be 21 per cent, he said. ‘We have cut down on exports to make more steel available in the domestic market, but it has had no negative impact on the performance of the company,’ he said. He said RINL was likely to end the financial year with 3.9 mt of hot metal (down by 3 per cent), 3.55 mt of liquid steel and 3.1 mt of saleable steel. The plant would also produce 8.5 lakh tonnes of value-added steel. During the first nine months of the current financial year, it had sold 2.17 mt of steel, worth Rs 5200 crore. Rao said the company had faced raw material scarcity during the first quarter, and it was taking certain permanent measures to tackle the problem. ‘We are conducting talks with some companies abroad to have joint ventures to meet the coking coal shortage. We are also talking to the Orissa and Chhattisgarh Governments to acquire captive iron ore mines,’ he said. The company had an ambitious expansion plan to increase capacity to 7 mt by 2007-2008, a move that would require Rs 8250 crore. RINL would borrow Rs 2000 crore-Rs 2500 crore from the market; the rest would be met from internal resources, he said. |
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Tata Steel will hike prices for all its long-term contracts from April 1. Although the company did not specify the exact quantum of increase, company executives said that price negotiations with the company’s long-term customers were on and that a final decision on the price increase would be taken soon. ‘There has been a consistent rise in global steel prices. Taking into consideration the demand scenario, prices of long-term contracts will undergo an upward revision. The price increase will be for all products,’ a company source said, spot prices of hot-rolled coils, the benchmark of steel prices, are currently hovering at Rs 29,200 per tonne, excluding freight, excise and other duties. Tata Steel had announced a Rs 2000 per tonne roll-back of its prices in August last year. The company had also committed itself to maintaining its prices till March 31, 2005. Following Tata Steel’s price rollback, other primary players like Steel Authority of India (Sail), Ispat Industries, Essar Steel and Jindal Iron & Steel Company (Jisco) also announced price cuts. Subsequently, these companies raised prices by around Rs 500 per tonne in January. Senior executives of Sail, Ispat Industries and Jisco did not wish to give any definite indication of a price hike. ‘We review prices on a monthly basis. At the moment we cannot say whether there will be any price changes in April. No decision has even been taken on prices in March.’ A Essar Steel official said: ‘We fix prices on a quarterly basis and the current price will hold till March end. In the last week of March we will take a decision on April prices.’ |
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Steel companies fear availability of iron ore after Posco’s entry Posco’s entry to India has threatened domestic steel producers for availability of iron ores to them in near future. Even as Posco and the Orissa government edge closer to finalising the Rs 40,000 crore steel plant deal, domestic steel players fear that a single foreign entity would walk away with a large chunk of the 3567 mt of iron ore deposits in the state. Domestic industry is aware that Posco’s 12-mt capacity steel plant would give it access to 1000 mt of iron ore bodies — almost 30 per cent of the total deposits. But they are not convinced by the grand plans spelt out. Says an aggrieved steel company source: ‘Much of the steel capacity post-nineties has been added by the likes of Sail, Ispat, Essar, JVSL and so on. If Posco gets what it wants, what do the others get? With about 1500 mt of reserves are locked up in litigation, a portion has been allocated for captive mining, another lot is being exported, there is very little marketable surplus left for industry to come in’ the source added. With the steel industry being cyclical in nature, domestic players are sceptical about the 10-year-long project. They fear that not all of the 12-mt project would materialise. ‘While the iron ore is taken out, we fear that a minimal value addition of pelletisation would be done, while keeping competition out,’ local sources alleged. Contrary to this, Posco has already announced its intention to set up a hot strip mill to make hot-rolled coil, which would further raise the investment. In his meeting with the Orissa chief minister Naveen Patnaik Posco president Chang Oh Kang has expressed satisfaction over the progress in discussions and expects to sign an MoU within a couple of months. |
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Siscol plans Rs 400-cr capacity expansion Southern Iron and Steel Company Ltd (Siscol), which has its plant at Pottaneri in Salem district of Tamil Nadu, has lined up an investment of about Rs 400 crore to modify the plant’s existing facilities and to augment capacity. The company has planned to come out with a rights issue to part-finance its investment plans and has filed the draft Letter of Offer with the Securities and Exchange Board of India. In its letter, Siscol has said that Mecon Ltd, which conducted a techno-economic feasibility study to make the project viable, had assessed a capital expenditure of Rs 400 crore for capacity expansion from 0.3 mtpa to 0.6 mtpa in two phases. The cost of the first phase to be completed by July 2005 will be Rs 45 crore, the balance Rs 355 crore would be spent in the second phase scheduled for completion by June 2006. Siscol was originally promoted by the Coimbatore-based Lakshmi Machine Works Ltd and Tamilnadu Industrial Development Corporation Ltd. It is involved in the manufacture of pig iron, billets, bars and rods. LMW recently exited from the company by selling its entire shareholding to the Jindal group, which has a prominent presence in steel industry. |
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Finance, a major problem in steel capacity expansion The steel industry is facing a major hurdle in meeting the government's target for the next 15 years and that is availiblity of funds. The industry requires approximately Rs. 8000 crores per annum accumulating Rs. 120,000 crores during this period. This is the amount that banks and other financial institutions will have to cough up if the steel industry were to meet the rather modest target of 110 mt by 2020, set out by the Government. With the current capacity at around 35 million tpa (tonnes per annum), among six of the industry leaders (Sail, Tata Steel, RINL, JVSL, Essar Steel and Ispat Industries), if the country were to achieve its goal, it would mean the creation of an additional 75 mt capacity over the next 15 years. In other words, to add capacity at the rate of 5 mt each year at a Rs 2500-crore per mt cost outlay, the country needs to infuse funds to the tune of Rs 12,500 crore every year for the next 15 years. At a debt-equity ratio of 2:1, this would call for funding from banks of some Rs 8000 crore each year. Over the next 15 years, the aggregate requirement on this front would be Rs 1,20,000 crore. However, it is easier said than done, say industry watchers. As neither the Government nor the domestic banks have the depth for meeting the fund requirements that such huge capacity creations would call for, the answer could be a steel growth fund, where funds could be mobilised abroad. That could call for a sovereign guarantee for a certain period, as otherwise there may not be many takers to put money in India. Clearly, the Government may need to take a few hard decisions including raising the current level of iron ore mining. ‘Then, it would need to decide whether the incremental returns from additional conversion of iron ore into steel justifies the kind of capital outlay that the country needs to make if it were to emerge a global steel manufacturing hub. One way or the other, the Government needs to decide,’ said a steel sector analyst. According to V. G. Raghavan, Director-Finance, Essar Steel Ltd, having been in the business of making steel for some 50 years now, India should not be exporting iron ore at all. |
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Customs duty on alloy steel may be cut to 5% India’s upcoming central budget is likely to slash the customs duty on imported alloy steel to 5% from 15% to help lower the costs of machinery, automobile parts and engineering industries, reports said. If the duty is indeed cut, it will bring the import duty on various grades of alloy steel on a par with the levy on non-alloy steel imports, the report says, citing government sources. India’s annual production of alloy steel is about 1.5 million metric tons and 1.7 million tons of stainless steel. |
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Bokaro Steel Plant output to go up by 25% this fiscal State-run Steel Authority of India Ltd. expects annual production at its Bokaro Steel unit to increase by about 25%, due to the restarting of one of its blast furnaces, a company executive said. “Our fifth blast furnace was restarted in December. It is now operating at about 103% capacity. We expect it (Bokaro) to produce a total of about 10,000 (metric) tons of crude steel a day by this month’s end,” said the executive. SAIL’s Bokaro unit previously produced about 8,000 tons of crude steel a day. The unit, located in the eastern state of Jharkhand, has an annual capacity to produce 4 million tons of steel. |
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The world’s second-largest steel maker, Arcelor, doubled core profits last year to e4.3bn ($5.7bn), in line with estimates, on the back of high steel prices, cost cutting and consolidation of a Brazilian unit, reports said. Gross operating profit rose to e4.3bn in ’04 from e2.2bn in ’03. Net profit leapt to e2.3bn from e257m, above the expected average of e2.2bn. Arcelor took control of Brazilian low-cost flat carbon steel producer CST last year and started consolidating its results in Q4. Arcelor said it expects the steel industry to continue to benefit from ‘a substantial growth of consumption in China.’ Arcelor said it planned to pay a 0.65 euros per share gross dividend, up from 0.40 euros. Arcelor said apparent consumption — which includes stock building — in Europe in 2005 should remain at 2004 levels as inventories are back to normal levels. Dolle also said imports in Europe remained high. |
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The world largest miner BHP Billiton reported a doubling of net profit in the six months to December 31, 2004, of $US2.757 billion ($3.5 billion) up from $US1.213 billion the previous year, sources said. The result exceeded market expectations. BHP Billiton Ltd said world growth would be above trend in 2005. BHP Billiton said the group’s capacity to respond to growth in demand had been enhanced through its new projects, auguring well for the future. The first half profit was achieved off revenues from ordinary activities of $US15.521 billion, a 41.6 per cent increase on the same period in 2003/04. A 13.5 US cent interim dividend was declared compared to the eight US cent dividend a year ago. Improved sales prices added $US3.035 billion to the group’s earnings before interest and tax (EBIT) for the half year while increased volumes contributed an extra $US150 million. Exchange rates wiped $US340 million off EBIT. Price linked costs wiped $US235 million off the EBIT while costs increased by $US255 million. |
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Posco chooses Orissa over Brazil South Korean steel major Pohang Steel Company might zero down on Paradip Port on the Orissa coast to establish their proposed mega Rs 40,000 crore steel project, official sources said. The company, which has been eyeing Orissa to set up a 12 mt steel complex, had Dhamra and Duburi as possible alternatives, but the port city could edge out the other two locations, the sources said. A South Korean delegation headed by Posco’s President Chang Oh Kang, which arrived recently visited, is visiting Paradip to have a look at the possible site near the port city. Posco experts had visited Dhamra and Duburi, the state’s projected steel hub of the future, during an earlier visit. But they had found the soil not very firm at Dhamra—the site of a future port— while Duburi was becoming crowded with several steel projects lined up there, the sources said. The team discussed the project, availability of infrastructure and commitment from the government about regular supply of iron ore, coal and other raw materials. |
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ThyssenKrupp, Steel Cos to research low-CO2 technologies ThyssenKrupp Steel, the flagship steel unit of German industry conglomerate ThyssenKrupp AG, has entered an agreement with 47 fellow steel companies and organizations to jointly research steel production technologies with low carbon-dioxide emissions. The consortium calls itself ULCOS, ultra-low CO2 steelmaking, ThyssenKrupp Steel said, and has a EUR45 million budget. The European Union Commission provides half of the funds and companies involved the other half. It aims to reducing CO2 emissions in the steelmaking process by more than 30%. Luxemburg-based Arcelor (5786.FR), the U.K.’s Corus Group PLC (CGA) and Voestalpine AG (VOE.VI) of Austria are also part of the consortium. |
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Nippon Steel, BlueScope to team up in steel sheet ops Nippon Steel Corp. will tie up with BlueScope Steel Ltd. of Australia for fabrication and marketing of its construction-use steel sheet. Japan’s largest steel maker will fabricate and market the steel sheet in Asia, Australia and New Zealand by using BlueScope’s facilities, Nippon Steel said in a statement. Their tie-up doesn’t cover sales of Nippon Steel’s steel sheet for use in other products such as home appliances, it said. |
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Japan’s January crude steel output increases 1.9% Japan’s production of crude steel rose 1.9% in January from a year earlier to 9.52 million tons, for the eighth straight month of increase, the Japan Iron and Steel Federation said. Compared to the previous month, that figure was a 0.5% decline, the industry group said. Of the total, production by converters rose 2.2% on year to 7.30 million tons, also up for the eighth consecutive month, the group said. Output by electric furnaces increased for the 10th straight month, up 1.0% to 2.22 million tons, it said. Production of ordinary steel rose 0.3% on year to 7.42 million tons, marking the seventh straight month of gains, while specialty steel output jumped 8.1% to 2.1 million tons for the 33rd consecutive month, the group said. |
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Brazil’s Bradesco Bank reduces stake in Belgo-Mineira Steel Brazil’s largest private bank, Banco Bradesco (BBD), has reduced its stake in Brazilian steelmaker Belgo-Mineira. Bradesco did not provide financial details. The bank said it sold common shares in Belgo-Mineira, reducing its holdings in common shares from 4.45% to 3.44%. |
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Thai Siam Cement to sell affil to NatSteel for THB680M Thai industrial conglomerate Siam Cement PCL has agreed to sell its 29% stake in Siam Industrial Wire to Singapore-based steel maker NatSteel Ltd. for THB680 million (US$17.7 million). The transaction, expected to be completed by the first quarter, will result in THB250 million in extraordinary gains for the company, Siam Cement sources said. The sale is in line with Siam Cement’s plan to divest its non-core businesses. Siam Industrial Wire is a manufacturer of pre-stressed concrete wire, pre-stressed concrete strand, cold drawn steel wire and wire mesh. |
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Nippon Steel to buy Dormant M’bishi steel furnace Nippon Steel Corp. will purchase from Mitsubishi Steel Mfg. Co. an electric furnace in Muroran, Hokkaido, reports said. The furnace, which is not in operation, will be restarted by July and is slated to produce about 20,000 metric tons of steel a month. The acquisition will boost Nippon Steel’s annual production capacity for specialized steel by 15% to 1.8 million tons. The purchase price has not been finalized but is expected to be less than Y5 billion. The Mitsubishi Steel furnace is located within the lot occupied by Nippon Steel’s Muroran steel plant. It had been supplying crude steel to a Mitsubishi Steel subsidiary located on the site but was taken off line at the end of 2001 as part of the company’s streamlining efforts. Nippon Steel will outsource to the Mitsubishi Steel subsidiary such functions as running the furnace. Resuming operations at the furnace will reportedly create about 120 jobs. Iron scrap and pig iron from Nippon Steel’s blast furnace will be mixed in the electric furnace to produce crude steel, which will then be treated with an alloy and rolled. The specialized steel, which is used for automotive gears, crankshafts and springs, will be marketed to parts manufacturers. |
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