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| SEPTEMBER 2004 | |
| From the CEO's Desk | |
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Indeed, iron & steel industry has become one of the ‘most watched’ industries in India. In last few months, the industry has recovered some of the lost capital, improved the bottomline and most importantly, gained back the confidence of the investor community. POSCO, a giant steel maker from South Korea intends to set up a mega project in Orissa. This news underlines so many things. Firstly, this development gives a very strong message to the global steel community that making steel in India is cost competitive. Yes, we have abundant iron ore and other minerals, world-class technology, competent work force and also a sizable demand of around 35 mt per annum to support the steel mills. Secondly, it also indicates that India can be seen as a strong partner country who is committed to liberalization. It has developed adequate infrastructure, friendly policies and simple procedures. The only negative factors in India are high cost of finance and power. Of this, cost of finance is gradually coming down and would soon be at par with international norms. As regards cost of power, I think co-generation through waste heat recovery would substantially bring down the power bill. In some states in India, steel projects does not get government clearance unless they have a co-gen module. This, apart from producing power, also stops the hazardous gases to escape to atmosphere and add to the pollution. Some technocrats have already started working on integrating melting, casting and rolling in such a way that minimum energy is wasted and there is no duplication of heating. I do admire the experience and expertise of international technology providing companies but at the same time strongly feel that every country should develop its own technology which is best suited to local conditions. Isn’t emergence of mini sponge iron sector in India a result of such innovative thinking and employing ‘most suitable technology’? D.A.Chandekar |
Fuchs
Lubricants |
| Headlines
Govt. may go in for revival of 180 closed steel units JSPL to raise fund for expansion VSP to finalise coal supply JV soon Indian Seamless entities plans merger DEPB rates on steel to be cut soon ECL delays commissioning of coke oven plant by 6-months Domestic Steel consumption to double by 2011: V S Jain Steel prices are stable in India - Steel Secretary China withdraws anti-dumping measures on steel coils FTC may okay Hanbo Steel takeover AK Steel may raise SS products prices ThyssenKrupp Steel sells SWB unit Vietnam cuts import taxes on specific steel Kobe Steel lifts net profit forecast China Baoshan, Nippon, Arcelor steel JV Thailand to revive AD tariff on HR products |
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Steel companies are lured with rising potential of steel industry and they are going for big ticket expansion in their production capacities by installing new plant and machineries or upgrading the existing one. SAIL has already announced a Rs.22,000 crore investments in order to exploit the potential. Now, Durgapur Steel Plant (DSP), a Steel Authority of India Ltd (Sail) unit, will invest Rs.2,800 crore over the next eight years to enhance capacity to three mt by 2012. At present, the plant has the capacity to make 1.86 mt of crude steel and expects to cross for the first time in its history; 2 mt during the current fiscal sources said. A senior official said the first step has already been taken with the placement of an order for a bloom caster with a capacity of 8.5 lakh tonne on a consortium led by Daneili Centro of Italy. This project will cost over Rs 271 crore. The bloom caster will come along with a ladle furnace and a re-heating furnace. It also plans to upgrade its blast furnace No 1 to enhance the hot metal production to around 3.5mt. The tar injection in blast furnace No 2 and coal dust injection in blast furnace Nos 3 and 4 are likely to be completed by the next year. The plant also plans to put up bar and rod-making capacity of 1.4 mt and a medium structural mill of four lakh tonne besides putting up another billet caster in future to provide continuous route to the enhanced crude steel production. It will revamp its merchant mill, augment raw material handling capacity, modify the existing billet caster and balancing facilities for the basic oxygen furnace. It has also envisaged to set up an oxygen plant with a capacity of 500 tonne per day on BOO (build-own-operate) basis to meet the enhanced oxygen demand. With the above investments and addition of the various facilities, the plant would enhance its finished component to 2.63 mt out of the total projected saleable steel production of 2.84 mt. |
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Govt. may go in for revival of 180 closed steel units The government is considering seriously revival 180 closed steel units around the country. A study group, constituted for revival the units with a total capacity of 5400 tonne, had its first meeting recently in Delhi. ‘The current revival of the steel sector has enthused the government to make efforts to revive the closed units. This may act as a fillip to the construction sector since these units mostly produce construction equipment,’ said an official who attended the meeting. These private sector downstream units had been set up in the 1970s during the times of former steel minister, Mohan Kumaramangalam in a socialistic approach to create jobs round the country. Among the units being examined by the ministry include Andhra Steel, Canara Steel in Karnataka, Ellora Steel, Kanoria Steel among several others. Most of these companies figure as sticky assets in the books of large lending institutions and banks. These units had shut shop in the 1990s due to shortage of raw materials, erratic power supplies, pressures of globalisation, technical or managerial issues. These are downstream companies with an average capacity of 15-50 tonne. They melt scrap to make girders, angles, rods, bars etc for construction activity. The domestic demand for steel growing at 6 per cent current quarter has been fuelled by the construction and automotive sectors and, therefore, this revival plan may just click. |
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JSPL to raise fund for expansion The Navin Jindal managed, Jindal Steel and Power (JSPL), will raise $50m through external commercial borrowings (ECB). The company has mandated Barclays Capital as the merchant banker for the debt issue. The proceeds from the ECB, amounting to Rs.230 crore, will be used for its Rs.1,400 crore capacity expansion plan at its Raighar works, in Chhattisgarh. The first phase of JSPL’s capacity expansion programme includes setting up an 8 lakh tonne per annum metcoke plant and a 12.5 lakh tonne sinter plant. The company will also set up a 10 lakh tonne per annum electric arc furnace unit and a 12.5 lakh tonne per annum blast furnace, which will take JSPL’s total steel production capacity to over 24 lakh tonnes by September ‘06. Part of the capacity expansion programme will be funded through internal accruals of Rs.560 crore. The remaining Rs.840 crore will be raised in the form of debt. An official of the company said that the company has enough cash flows to fund the projects, and that a larger part of the debt would be required in the last quarter of next year. According to him, most of the debt is rupee denominated except for the funds brought in the form of ECBs. |
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VSP to finalise coal supply JV soon Last months interruption on coal supplies from Australia and thereby decline in production has forced steel producers to enter into understandings with coal suppliers. To maintain uninterrupted coal supplies for its steel production, the Visakhapatnam Steel Plant (VSP) has proposed to enter joint ventures with overseas coal companies, reports said. When asked about the development, VSP chairman and managing director BK Panda confirmed that the company is looking for coal companies overseas. However, he said that a decision is yet to be taken on the issue. However, according to highly placed company sources, VSP has already explored opportunities to join as an equity partner in a major Canada-based coalmine. ‘We have received offers from Canada, the company is yet to take a clear view on the investment,’ sources said. As of now, VSP is importing over 10 per cent of its coal requirements from Australia. In fact of late, the company was facing serious problems with coal supplies from Australian mines due to various reasons including labour trouble there. ‘We receive about five ship loads of 45,000 tonne from Australia,’ the company official said. ‘Recently we have received a message that there is some problem in one of the coalmines, which may result in some variance in the company's supply schedules. So, VSP is now preparing contingency plans to tide over the possible problem, which may occur in the next two to three months. It prefers to participate in the management of the coal mine, which would give an additional edge in ensuring continuous supplies. Besides, the company also wanted to have a supply point in the western part of the world, so that, supply disruptions arising out of country specific problems can be avoided. |
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Indian Seamless entities plans merger Mergers and acquisitions have been the need of the hour. The two companies consisting of the Indian Seamless group are set to merge, following the approval of the over Rs 600-crore corporate debt restructuring (CDR) by most of the banks and financial institutions (FIs). The merged entity is expected to be called Indian Seamless Steels and Alloys (Issal), although this is a company set up by Indian Seamless Metal Tubes (ISMT) as a backward integration. Sources, however, indicated that the choice of name will depend on who merges with whom, a decision dictated by tax benefits. The group had sought a two-year moratorium for a 15-year rescheduled repayment. The consortium of banks and FIs is lead by the ICICI Bank, which has a Rs 140 crore exposure. While ISMT had dues of Rs 325 crore, Issal’s outstanding totals Rs 278 crore. Issal’s accounts for ’03-04 have been qualified over remuneration to its directors. Government approval is needed as it continues in its default of payment of principal and interest on debentures. Its previous board of directors, including promoter of the group BR Taneja, had stepped down prior to the end of the last fiscal, ’02-03, to avoid being disqualified for the same reason. The steel manufacturer has proposed to issue 50 lakh shares to its employees under an Employee Stock Option Plan (Esop). |
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DEPB rates on steel to be cut soon The government will announce new DEPB rates for steel and textiles very soon. This was stated by Commerce and Industry Minister Kamal Nath on the sidelines of a conference on tea industry in Delhi recently. The new DEPB rates will be lower than the present rates as it will be done after adjusting recent cuts in excise and customs duty for these two sectors. ‘We are working out the details. It (new rates) will be announced in a day or two,’ Nath said. In the Budget for 2004-05, excise duty on textiles had been reduced. Customs duty on steel also had been cut. ‘So, the DEPB rates will be adjusted accordingly. Obviously, the new rates will be lower,’ Nath said. Customs duty on steel was further cut recently to check the rising inflation. The DEPB scheme is used as a duty neutralisation scheme to pass on export benefits to domestic producers. As per the scheme, the Government reimburses basic and special customs duty to an exporter on an imported input used in the export product. |
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ECL delays commissioning of coke oven plant by 6-months The originally-scheduled in August 2004 for commissioning of the Rs 100-crore new coke oven plant of Electrosteel Castings Ltd (ECL) at Haldia with an installed capacity of 1.5 lakh tonnes per annum (tpa), has now been pushed back by six months to January 2005. The project has been delayed owing to a combination of factors such as heavy rains resulting in flooding at plant site, shortage of skilled labour and slowdown in delivery of key raw materials. The coke to be produced from the Haldia plant was expected to replace the requirement of imported coke at ECL’s mother plant at Khardah in West Bengal. The imported coke requirements of the company are now put at 13,500 tonnes per month, and the international prices (averaging $450 per tonne now) have registered a phenomenal increase in the last one and half years, it is pointed out. Mainly the monsoons and the low availability of raw materials such as refractory bricks, mainly procured from Dhanbad and Rajgangpur (Orissa), have contributed to the commissioning delay. Asked on the position of coal imports, sources said, the company was now in the process of rescheduling the quantities and deliveries of imported coal, being imported from Russia, Australia, China and a few other countries. The prices of iron ore and coke, the principal raw materials for manufacture of ductile iron (DI) pipes, increased by 32 per cent and 54 per cent respectively during 2003-04, and the overall price fluctuations for these materials in the global markets have created problems for the company. In order to mitigate this threat of disruption in raw material supplies, ECL was setting up the coke over plant, along with a one-lakh tonne sponge iron facility at Haldia. Imported coal will be converted to coke for feeding the mini blast furnace at Khardah. |
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Domestic Steel consumption to double by 2011: V S Jain India’s annual steel consumption is expected to double to 60 million-65 million metric tons by 2011 from an expected 30 million tons this year. “India’s steel consumption is poised to leap in the coming few years as the country’s economy continues to grow,” V.S. Jain, chairman of the Steel Authority of India Ltd., or SAIL, told delegates at a metals conference in Delhi. SAIL, India’s biggest steel maker, is a state-owned company. Jain said global steel demand, which began rising in 2002, was led by China, but that now India is showing strong demand as well, which should continue to be fueled by the country’s robust economic growth. However, he said, a major cause of concern for the Indian steel industry is the sharply rising cost of inputs such as coking coal and iron ore, both of which Indian steel companies import in large quantities. |
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Steel prices are stable in India - Steel Secretary Indian steel prices are stable at present and the government doesn’t expect to see any immediate increases. “I think prices are stable right now and the government has no concerns on this issue. Anyway, Steel Authority of India and Rashtriya Ispat Nigam, the two major state-run companies, haven’t increased prices since March,” said Binoo Sen, India’s steel secretary. India’s steel prices had risen sharply for several months, prompting the government to sharply cut import and excise duties on steel this year. Last month, major steel producers, both state-run and private companies, cut their prices by 1,000-2,000 rupees ($1=INR46.30) a metric ton after the government and industry expressed their concern about high steel prices. In addition to the large state-owned steel companies such as Steel Authority of India Ltd. and Rashtriya Ispat Nigam Ltd., the major private steel companies in India are Tata Iron & Steel Co., Essar Steel Ltd., Jindal Iron & Steel Co. and Ispat Industries Ltd. Responding to reports that iron ore exports might be banned, Sen said the government had no intention of restricting or banning iron ore exports by Indian state-run or private companies, despite concern among steel companies about a sharp rise in iron ore prices. |
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China withdraws anti-dumping measures on steel coils Faced with acute shortage of cold-rolled steel coils, China has withdrawn anti-dumping measures imposed against the item imported from South Korea, Russia, Ukraine, Kazakhstan and Taiwan, reports said. The decision follows “dramatic changes that had happened in the supply-demand situation after the anti-dumping decision was made,” an official from the Ministry of Commerce said in Beijing. “It is not necessary to impose the anti-dumping tariff as China is short of the coil,” sources said. This was the first anti-dumping case reversed by the market situation. The decision was made after the ministry opened a public hearing on June 1 this year on whether to continue anti-dumping duties on cold-rolled steel coil, an important material for China’s prospering industries such as automotive, home electric appliances, machinery and construction. The ministry ruled on September 23 last year to impose an average anti-dumping duty of nine per cent on cold-rolled steel coil but the implementation was delayed to January 14 this year because domestic market supply was short then. An official from the bureau of fair trade for import and export of the ministry said when the anti-dumping probe began, supply outstripped demand in both international and domestic market but the situation was now reversed. Many domestic users of cold-rolled steel coil had complained that domestic supply cannot meet their demand and that high prices have damaged their competitiveness. |
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FTC may okay Hanbo Steel takeover South Korea’s Fair Trade Commission will approve INI Steel Co.’s acquisition of Hanbo Steel on condition that the former sells part of its steel bar production facility, sources said. A consortium comprising INI Steel and Hyundai Hysco purchased bankrupt steel maker Hanbo Steel in July for 877.1 billion won ($1=KRW1,146). The consortium plans to close the deal early next week, INI Steel said. The FTC said: “We ordered the steel maker to sell its Pohang 1 steel bar pressing facilities within a year after the FTC’s order to prevent INI Steel to have a monopolistic position in the local steel bar market after its acquisition of Hanbo Steel.” INI Steel currently has an annual steel bar production capacity of 3.3 million tons and Hanbo Steel can produce 1.15 million tons a year. “The facility is one of our oldest facilities and we don’t expect the sale would have any negative impact on us,” said an official at INI Steel’s investor’s relations department. The corporate watchdog expects the deal to help limit Posco’s dominance in the local steel market if Hanbo Steel’s production facilities are normalized. As of end-2003, Posco accounted for 67.5% of domestic hot-rolled steel market while imported products made up for the rest. The FTC said Hanbo is expected to take up about 12.5% of local hot-rolled steel market once its production facilities are normalized. |
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AK Steel may raise SS products prices AK Steel Holding Corp. will make some changes to its light-gauge stainless steel products that will result in a 3% to 6% increase in prices, reports said. In a press release, the maker of carbon and stainless steels said effective Sept. 13, it will increase the gauge and width extras for certain 200, 300, and 400 series stainless-steel sheet products. Also, the company will revise slitting extras for stainless-steel pipe and tube quality strip. An AK Steel official said these adjustments, which were prompted by market conditions and demand, will incur extra costs on manufacturing. The last time AK Steel increased stainless-steel prices was in May, when it raised certain product prices by about 6% amid rising costs in manufacturing, energy and transportation. In 2003, AK Steel posted $560.4 million in losses on revenue of $4.04 billion. |
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ThyssenKrupp Steel sells SWB unit ThyssenKrupp Steel, the steel unit of ThyssenKrupp AG had sold its SWB Stahlformguss GmbH subsidiary in a management buy-out. The unit was sold to two of its managers, with investment firm Norddeutsche Private Equity GmbH also taking a stake. The financial details of the transaction weren’t provided. SWB Stahlformguss is a supplier of casting for steel recycling and has annual revenue of EUR20 million. |
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Vietnam cuts import taxes on specific steel Vietnam has lowered taxes on some imported steel products to encourage local traders to cut retail prices, sources said. The Ministry of Finance has lowered the import tax on steel ingot to 5% from 10% and the tax on other finished steel products to 10% from 20%. The report didn’t say when the cuts were made. Local retail prices of construction steel products rose $6.7 per metric ton in August. Vietnamese traders are importing steel ingot for around $405-$420 per ton. The government estimates imports of steel products will reach 3.062 million tons valued at $1.432 billion in the first eight months of this year, down 3.4% on year in volume but up 25% in value. |
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Kobe Steel lifts net profit forecast Kobe Steel Ltd. lifted its earnings forecasts for the first fiscal half and the full year, citing brisk steel demand in Japan and abroad, as well as a rise in steel product prices. The Japanese steel maker raised its group net profit outlook for the current fiscal year through March 2005 to Y40.0 billion from Y34.0 billion. It lifted its full-year group sales estimate to Y1.420 trillion from Y1.370 trillion. Kobe Steel said its aluminum and copper related operations are also performing well on strong demand for these products used in cars and air conditioners. For the first half ending Sept. 30, the company now expects a group net profit of Y11.0 billion on group sales of Y690.0 billion, upgrading from its previous forecasts for a net profit of Y10.0 billion on sales of Y650.0 billion. However, Kobe Steel said it won’t pay any dividend for the interim period. Last fiscal year, the company posted a group net profit of Y22.0 billion on group sales of Y1.219 trillion. |
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China Baoshan, Nippon, Arcelor steel JV China’s Baoshan Iron & Steel Co., Japan’s Nippon Steel Corp. and Luxembourg-based Arcelor SA officially launched their auto steel-sheet production joint venture in Shanghai, reports said. For Baoshan Iron, also known as Baosteel, the US$800 million deal cements its position as China’s top steel-maker. The deal also gives the leading steel firms in Japan and Europe access to the world’s fastest growing car market. “The founding of the joint venture marks another important step for Baosteel in strategic cooperation,” said Ai Baojun, president of Baosteel. “It combines the technology of Nippon Steel and Arcelor along with Baosteel’s low production costs and large market.” The 1,800 millimeter cold-rolled strip mill is being built in Shanghai. Baosteel has a 50% stake, Nippon Steel 38% and Arcelor 12%. Production is slated to start in the second quarter of 2005, and construction and preparations for that are on schedule, said Guy Dolle, Arcelor’s chief executive. The output of the joint venture will be for the domestic Chinese market and the venture will supply many global automakers operating in China. |
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Effective September 17, 2004, China’s Ministry of Commerce lifted antidumping tariffs on cold-rolled steel products from South Korea, Russia, Ukraine, Kazakstan and Taiwan due to domestic demand. The statement said both the international market and China’s domestic demands had changed, and a shortage of cold-rolled steel negated the need for those antidumping tariffs. Cold-rolled steel is needed in the production of items including automobiles and household appliances, the statement said. The ministry’s decision reverses antidumping tariffs ranging from 3% to as high as 55% imposed in January, in response to complaints from Wuhan Steel Processing Co., China’s largest steel maker Shanghai Baosteel Group and Anshan Iron & Steel Group. The decision to ease import restrictions on cold-rolled steel coincides with government efforts to trim overcapacity in the domestic steel industry linked to economic overheating. Policy-makers have flagged sectors including steel, cement and automobile manufacturing as magnets of overinvestment. Government measures to curb overinvestment, which had been blamed for the economy’s fast growth, include tighter land development rules and curbs on commercial bank lending. China’s economy expanded 9.6% year on year in the second quarter of 2004, a slight easing from the 9.8% surge in the first three months of the year. |
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Thailand to revive AD tariff on HR products Thailand’s Ministry of Commerce has decided effective Sept. 20 to impose antidumping tariffs on imported hot-rolled steel which have been suspended since March. Commerce Minister Watana Muangsook said he has ordered steel users to submit by Sept. 15 reports estimating demand, so that the ministry can consider whether local supply is sufficient. “If domestic production can’t meet demand, we will have to lift the import quota, but the ministry has no plan to drop all import tariffs as that will adversely affect local steel producers,” said Watana. “I can assure you that the antidumping measure will not be terminated,” he said. Currently, the country has set a quota for imports of hot-rolled steel at 470,000 million metric tons a year, but the nation’s actual steel imports are still below 400,000 million tons. Watana said the country’s hot-rolled steel production capacity totals 6.3 million tons a year, but steel manufacturers supply only 50% of what they could actually produce. The government imposed the antidumping measure in May last year on companies from 14 countries exporting hot-rolled steel, and it was to have been in effect for five years. However, the Ministry of Commerce suspended the measure in March because consumers were badly affected by soaring steel prices. Imported hot-rolled steel used in the production of automobiles, electronics, cold-rolled sheet steel and canned foods will remain exempt from the measure, to prevent excessive increases in prices for consumers and producers in those industries. |
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Sahaviriya to invest THB500 bl in steel project Sahaviriya Group, a major steel producer in Thailand, plans to invest 500 billion baht ($1=THB41.55) over the next 15 years in an upstream iron and steel production project. Annual capacity of the entire project will be around 30 million tons, helping turn Thailand into a net steel exporter from a net steel importer at present, the company said in a statement. Sahaviriya said the project will be divided into five phases. Construction of the first phase, with investment of around THB80 billion, is expected to be finished in 24 months to produce around 5 million tons of steel slabs and billets a year. Many local and foreign institutions have shown interest in supporting the project, the company said without specifying names. Sahaviriya said it hopes the project will get support from the government. The group’s flagship is Sahaviriya Steel Industries PCL. |
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Nippon Steel ups sales outlook Nippon Steel raised its group sales estimate for the fiscal year to Y3.280 trillion from Y3.090 trillion. Group operating profit is now pegged at Y330 billion, revised up from Y250 billion it previously reckoned. The company said domestic steel demand for use in automobile, shipbuilding and other industries remained vibrant, which help domestic industrywide steel product consumption to exceed 70 million metric tons this fiscal year for the first time in four years. It also noted hefty demand from China and other Southeast Asian markets. These beneficial effects canceled out the falloff in production caused by power failures at its production facilities in Nagoya in June. For the first half, the company decided to again skip interim dividend. The company paid Y1.5 a share last fiscal year. |
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