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| NOVEMBER 2004 | |
| From the CEO's Desk | |
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The recently held consumer council meeting in Mumbai was unique in many ways. Firstly, it was very well attended by producers, consumers, traders, industry associations and also the press. All of them had done their homework quite well and expressed strong views on many issues. Yes, steel consumers and the bodies representing the consumers were very aggressive, vocal and clearly dominated the scene. Their major concerns were rising prices and reducing availability. Though these points are correct, in our opinion, putting the entire blame on producers is not justifiable. Firstly as we all know, the raw material supplies such as coking coal are inadequate and international price of these items has increased exponentially. Do we remember that some of the steel producers had to reduce their production due to this ? This has also contributed in rising the prices as well as reducing availability of steel in domestic markets. Secondly, consumers wanted government to put a cap on exports and also withdraw all the export ‘incentives’. First of all, I would object to the word ‘incentive’. If one sees internationally, the cost of power and finance in India is higher and if an Indian steel producer wants to compete in global markets, he is clearly at a disadvantage. Thus, these export benefits are nothing but a compensation for such disadvantage and should not be withdrawn unless the cost of power and finance is made at par with international norms. If the domestic steel demand is rising, I am sure Indian steel producers would like to sell more steel and make more money but with reduced import tariffs, the consumers also have an option of importing. Also, with many bad years in recent past, it would be injustice to steel producers if they are denied the opportunity of exports. Govt. says ‘you first fulfill domestic demand and then export’. Well, this may be good as a policy but how would one implement it ? What about the long term export contracts ? Why should anybody let go his hard earned goodwill in global markets ? Finally, I feel that Indian steel industry is going through a transition. All the major steel makers in India are executing huge expansion plans and in next 1/2 years, the steel availability in the country is going to improve substantially. For last few years, steel makers have suffered a lot for slick domestic demand. Now it is the turn of the consumers. D.A.Chandekar |
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| Headlines
ISA plans total representation Tatas plans huge investment in Orissa Orissa govt policy to affect Tata, Jindal plans HR coil exports dip in first half Visa Industries enter manufacturing with steel plant in Chattisgarh Mukand to increase price in January Mittals’ magic touch revives Nigerian steel company European steel cos’ profits rise fuelled by China, prices JFE Steel, Kobe Steel to expand steel output - Nikkei China Steel ups local prices avg 4.6% 1Q ’05 Baoshan Iron to raise 1Q steel prices about 10% EU raises Russian Steel import quota for 2005 Global steel output to top billion-tonne mark this year |
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While addressing a press conference in Mumbai, Union Minister of Steel Shri Ram Vilas Paswan said that a steel regulatory authority (SRA) may be set up by an ordinance, as private sector steel companies have indicated a hike in prices. “If they (producers) raise prices irresponsibly, the government will be forced to take steps that will not be comfortable,” the minister said, during his interactions with officials from integrated steel manufacturing companies and the user industry. Mr Paswan was addressing the National Steel Consumers’ Council (NSCC) meet, organised by the Joint Plant Committee (JPC). He added that the SRA would be the last option. “We are ready with it. If there are frequent price increases, we will be forced to use our last option,” he said. Steel producers, particularly from the private sector, seem in no mood to relent. Senior officials from Ispat Industries (IIL), Jindal Iron and Steel (Jisco) and Essar Steel have said that as of now, no price increase has been decided and that a decision would be taken soon. Steel Authority of India chairman V. S. Jain has clarified that his company has not raised prices. Mr Jain said the company, however, reserves the right to review its prices every month. Tata Steel officials have stated the company has raised prices by Rs 500 per tonne on all its products. The formation of the SRA has not been welcomed by the industry and the bureaucracy at the steel ministry. Steel producers pointed out to the minister during the meeting that input costs have been increasing steadily over the past nine months. While voicing concerns of the industry, an IIL official told Mr Paswan that a regulatory authority would be acceptable to the industry only if the government decided on a fixed return on investment for steel manufacturers, on the lines of the power industry and the fertiliser industry. Bureaucrats from the steel ministry have also raised doubts on the ability of a regulatory authority to monitor prices. According to a bureaucrat from the ministry, since there are multiple players and products, it would be impossible to regulate steel manufacturers. |
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ISA plans total representation Indian Steel Alliance seems to have become lenient towards membership of the body in order to strengthen and wider coverage of the Alliance. In order to bring all backward and forward integration under one umbrella, the Indian Steel Alliance (ISA) is working out a plan to put up a unified face representing the entire steel industry through the formation of an umbrella association, and not only the segment-specific interests of its members which are hot-rolled steel makers. The exercise is aimed at sourcing funds for future expansions at internationally competitive rates for which it is necessary for the industry to put up a unified face. According to the ISA, the objective is to create a platform that would accommodate all the existing associations of iron and steel manufacturers such as the Cold Rolled Steel Manufacturer’s Association, Indian Induction Furnace Association, Sponge Iron Manufacturers of India and a few others like the Rerollers’ association, Electric Arc Furnace Association etc. The ISA currently has five members, namely, Steel Authority of India Ltd (SAIL), Rashtriya Ispat Nigam Ltd (RINL), Essar Steel, Jindal Vijaynagar Steel and Ispat Industries. Tata Steel recently left ISA. Sources said that once a umbrella structure is finalised, something on the lines of ‘Federation of Indian Steel Industry Associations’ or something similar, the next step would be to urge the Government for providing growth opportunities to the industry by providing level playing fields. ‘In simpler words, the industry would ask for a special steel industry fund or a system through which all new capacities planned would be able to borrow money at the same rate as their counterparts in other countries do at the going international rate which is much lower than the domestic cost of funds,’ sources said. A meeting has been convened by the ISA recently in which the promoters of the three private sector companies and the chief executives of the two public sector companies will met give a final shape to the plans. |
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Tatas plans huge investment in Orissa Steel revolution in Orissa has been continuing. Especially with the new entrant, Tata Steel, the list of proposed steel producers in the state has swollen up. Tata Steel has signed Memorandum of Understanding (MoU) with the government of Orissa for huge investment in steel, tourism and the information technology sectors in the state. Three separate Memorandum of Understandings (MoU) were signed between representatives of the Tata Group and the Orissa government, whose combined worth is estimated at about Rs. 170 billion. Under this plan, Tata Steel will be setting up a six mt greenfield integrated steel plant at Duburi in the Jajpur district at an estimated cost of Rs.154 billion. The plant will come up in two modules of three mt each. The first phase is scheduled to be completed in 48 months followed by the second module, which has been slated to be completed in 24 months. The state government has agreed to provide required land, power and water for the plant. Iron ore requirement for the plant in its two modules has been assessed at 250 mt for a period of 25 years. The state government has assured making available adequate iron ore for the plant after taking into account the total requirement of Tata Steel and the iron ore reserve available with the group. The raw material allocation will be done after the project crosses specific milestones in terms of investment. The plant is expected to become operational by 2008 and is expected to take advantage of the port facilities being developed at Dhamra in which the Tata group holds a stake. |
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Alloy Steel Plant (ASP) of Sail has increased its sales turnover by 36.8 per cent to Rs 2.88 billion in the first seven months of the current fiscal year. The turnover for the month of October reached Rs. 407 million which is nearly 26 per cent more than the turnover in October 2003. Commenting on the plants performance ASP’s executive director NP Jayswal said, ‘the buoyancy in the market has helped a lot besides this, the techno economic parameters have also been instrumental in increasing production’. |
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Orissa govt policy to affect Tata, Jindal plans New policy guidelines of the Orissa government may hamper Tata Steel and Jindal Steel and Power’s (JSPL) proposed steel plant in the state as the proposal may put off these companies to get fresh captive iron mine, sources said. The allotment policy for captive mines in the state assures raw material linkage to a project for 25 years, based on its installed capacity. But a clause in the same policy says, ‘If a company has an existing mining area or controlling interest or long-term arrangement for supply of iron ore in any company/concern having mining area for the relevant mineral in the state, its requirement shall be reassessed by the state government after taking into consideration the quantity of mineral that can be met from these sources’. This clause has come in the way of Tata Steel and JSPL getting fresh captive mines as both the companies either own or have a controlling interest/long term arrangement for supply of iron ore with a local mine owner. Tatas own and operate at least five mines in the Keonjhar district of Orissa, which have a combined estimated reserve of 630 mt. As against this, the Tatas’ raw material requirement for its proposed 6 mt steel plant at Duburi for 25 years is estimated at 240 mt. The Tatas in their project proposal submitted to the state government have asked for allotment of captive leases with 540 mt iron ore reserve. But their existing leasehold of 630 mt of reserve being more than double the 25 years raw material requirement of 240 mt, the policy guideline of the state government does not allow for any further captive mines allotment to the company for the Duburi project. Similarly, the JSPL proposes to set up a two mt steel plant at Deojhar in Keonjhar district. Its iron ore requirement for 25 years is estimated at about 80 mt. |
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HR coil exports dip in first half The Indian Steel Association said that exports of hot rolled coils by integrated steel producers declined 35 per cent in the first half this fiscal to 6.4 mt as its member companies gave more priority to the domestic market. Exports of hot rolled coils by ISA members, which include majors like Essar, Jindal and state-owned Sail, dipped 35 per cent to 6.4 mt from 9.8 mt in the corresponding period last fiscal. Domestic sales rose 9 per cent to 3.5 mt from 3.2 mt in April-September 2003, while production grew four per cent to 6.6 mt from 6.3 mt in the year ago period. ‘Domestic industry has always been a priority for ISA. Our member countries have made a conscious efforts to ensure that the demand supply ratio is beneficial for the domestic consumers,’ ISA president Moosa Raza said. ‘Even though integrated steel producers can command a better price for their products in the international market, they have been giving priority to the local consumers. The sales, production and export figures of integrated steel producers validate this point,’ he said However, Raza warned that such steep decline in exports could also dampen the industry’s growth prospects in a global scenario. |
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Visa Industries enter manufacturing with steel plant in Chattisgarh Visa Industries plans to set up a steel plant in Chattisgarh as part of its strategy to diversify into manufacturing from trading. Vishal Agarwal, managing director, Visa Industries, said the company was in the process of acquiring land and the process was expected to be complete by the end of the year. The size of the project is yet to be finalised and will depend on the allotment of land. The Chattisgarh project would be Visa’s second steel manufacturing venture in the country. The company is setting up a 1.5 mt special steels plant in Orissa. Agarwal said, the Orissa project would focus on special steel while the Chattisgarh plant would be a carbon steel one. The investment in the Orissa plant would be around Rs 1,600 crore and would be completed in phases. Agarwal said: ‘Each of the projects would have separate financial closure.’ The project would be funded through a mix of debt and equity. The growth strategy being chalked out by the group is not just restricted to Indian shores. VISA group is eyeing investment opportunities in the mining sector in Australia, South Africa and Indonesia. |
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Mukand to increase price in January Mukand Ltd., an alloy steel maker that supplies to auto companies, is likely to raise the price of its products in January due to strong demand and rising raw material costs. “If steel scrap prices continue to rise, we’ll be left with no option but to raise our prices. However, such a move may be considered only in January,” said sources. Prices of steel scrap are currently about $350 a metric ton. They were $240 in April. The trend for scrap prices “looks very firm as demand is rising and the availability is also tight.” Steel scrap is a key raw material for Mukand and other alloy steel makers who use the electric arc furnace route to make their products. Mukand and other alloy steel makers had raised their prices by Rs. 1,000 a metric ton in April. Scrap prices are rising mainly as availability is low. The government tightened steel scrap import norms in October, after missiles in an unchecked steel scrap consignment imported by Bhushan Steel & Strips Ltd. exploded near New Delhi, killing 10 employees. Indian user industries can now import steel scrap only in shredded form at limited ports. Strong demand for alloy steel is also driving prices. Alloy steel usage has gone up as sales of cars and two-wheelers are rising sharply. Today, there is easy availability of finance for consumers. Sales of cars in India rose 35% on year in October, while two wheelers grew 12% in the same period. Increases in prices of other raw materials such as molybdenum could also support a price hike in alloy steel. Molybdenum prices have gone up to INR50,000 a ton, from INR36,000 rupees in April. |
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Tata Steel in the past months had said that the largest private sector steel producer will not raise selling price till March 31, 2005. But, a company official said that the company may reconsider its decision if the freight rate hikes are not rolled back. SAIL has not revised the price but Jindal Steel and other steep producers have gone in for price revision upwards. The threat of duty cut will also not work this time as the customs duty is already at the lowest possible level of 5 per cent. Some Indian manufacturers have started increasing their exports, which have become more lucrative than ever. Steel prices in the US have reached $750 per ton, while in Europe steel prices rule at $700 per ton. |
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Mittals’ magic touch revives Nigerian steel company Nigeria´s 2.2 mt public sector undertaking Ajaokuta Steel Company had never produced a tonne of steel in the 25 years since inception in 1979 when the Mittals of Ispat Industries acquired management and operational rights in the company in mid August 2004. Two months later, in November, Ajaokuta began producing steel. Mittals acquired operational control over the company through Global Infrastructure Holdings Ltd (GIHL), the holding company of the Ispat group. Controlled by Mr Pramod Mittal, the group currently controls about 10 million tonnes of steel making capacity and raw material processing capacity in the Philippines, Libya, Bosnia, Nigeria and India. The GIHL spokesperson described Ajaokuta Steel as a classic case of time and cost over-run leading to complications in commissioning. The finances for the project, incorporated in 1979, were exhausted after more than 90 per cent of the plant was set up. Despite the Nigerian Government trying to find a party capable of rehabilitating the plant and bringing it on stream, all such previous efforts proved futile for some reason or the other. GIHL had acquired the operational right in the company after the government scrapped the previous agreement with Solgas of US. The US-based company had reportedly failed to start production even after one and half years of taking over control. As per the new agreement, Mittals have acquired control over Ajaokuta Steel for 10 years, renewable for another 10 years. The group also holds the first right of acquiring the company as and when the Nigerian government decides to disinvest. According to the GIHL source, the new management has this month put the 1,30,000 tonne wire rod mill of Ajaokuta Steel on stream, based on billet supplies from Ukraine, and has adopted a production plan for the light section mill. |
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European steel cos’ profits rise fuelled by China, prices European steel makers delivered healthy results amid strong steel prices supported by China’s booming economy, in a fragmented industry showing signs of further consolidation. Arcelor, the world’s largest steel maker, reported more than doubling of third-quarter profits, topping forecasts, and its earnings are set to receive a further boost from the consolidation of a Brazilian unit. Its earnings before interest, tax, depreciation and amortisation (EBITDA) rose to 1.098 billion euros in the quarter from 416 million euros a year earlier. Its smaller Austrian peer Voestalpine said strong Asian demand and an improving European economy helped it beat forecasts with a 27.5 per cent rise in first-half operating profit. Voestalpine also hiked its outlook for earnings before interest and tax (EBIT) for the year to more than 374 million euros from 250 million euros. Arcelor shares were off 0.5 per cent at 16.02 euros, while Voestalpine rose 1.86 per cent at 51.40 euros at 1247 GMT. Steel prices have risen sharply in the past year because of tight raw material supplies and a growing Chinese economy. This trend looks set to continue, despite China’s efforts to curb its boom, and Arcelor chief executive Guy Dolle said 2005 would be even more favourable than 2004 for it, with annual contracts already completed at increased prices in the automotive and packaging sectors. |
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JFE Steel, Kobe Steel to expand steel output - Nikkei JFE Steel Corp. and Kobe Steel Ltd. intend to boost crude steel production in view of tightening supply due to increased production of cars and ships worldwide, sources said. JFE, a unit of JFE Holdings Inc., plans to raise its annual output capacity by about 10% next year from the current 27 million tons by retooling facilities at plants in both eastern and western Japan. The production capacity of its Hiroshima Prefecture plant in western Japan will be hiked 18% early next year by repairing one of its four blast furnaces. The facility will also quicken the pace of its casting work and shorten the cooling process in order to increase output. JFE’s steel mill in Kawasaki, just south of Tokyo, will use larger containers to transport molten iron and try to reduce the number of rejected products. The cost of modifying the plants will be covered by group capital investment budgets for the current fiscal year. Kobe Steel has raised the firm’s annual output capacity by about 3% by remodeling its mainstay Hyogo Prefecture plant in central Japan at a cost of Y5 billion. The company modified the facilities to enable it to remove impurities from molten steel, among others. Total crude steel production at the firm is estimated at a little more than 7 million tons a year. “We have raised output capacity by making maximum use of existing facilities. Any further growth in production will require a substantial increase in capital spending,” said Keiji Koyama, a senior executive at the company. |
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China Steel ups local prices avg 4.6% 1Q ’05 China Steel Corp. will raise the price of its products sold to domestic clients by an average of 4.6%, or NT$800 a metric ton, in the first quarter of 2005 from the current quarter. T.H. Chen, a vice president at Taiwan’s largest steelmaker, said after the company’s quarterly pricing meeting that the price hike is to align China Steel’s domestic prices with international steel prices. He said domestic demand for steel products is expected to remain solid through the first half of next year. |
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Baoshan Iron to raise 1Q steel prices about 10% China’s largest steel maker, Baoshan Iron & Steel Co. would raise the prices of its steel products by as much as 10.9% in the first quarter next year. The move is larger than Baoshan Iron’s usual quarterly price adjustment, said an official at the secretary’s office for the company’s board of directors. Steel stocks in China and Taiwan rose on the news. In China, shares in Baoshan Iron rose 2.1% to CNY5.97 and Wuhan Steel Processing Co. gained 1.2% to CNY3.50. In Taiwan, China Steel Corp. leaped 3.9% to NT$35. Baoshan Iron said it would raise the price of hot-rolled steel by CNY300 a ton, or 7.5%, from next year, while its price of cold-rolled steel would rise by CNY450 a ton, or 9.7%, and the price of its electric steel, used for home appliances and power generators, would rise by CNY600 a ton, or 10.9%. The timing of Baoshan Iron’s price adjustments lags that of other Chinese steel makers, which adjust prices on a monthly basis, said an analyst at a Western securities firm in Shanghai. She said steel prices in China started to rebound in July and August, but they remain much lower than international steel prices. |
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EU raises Russian Steel import quota for 2005 Russian companies will be able to raise their steel exports to the European Union by nearly 10%, sources said. The annual quota for 2005 and 2006 will be 2.22 million metric tons, compared with 2.04 million tons this year. The quota is intended to stay in force until Russia’s accession to the World Trade Organization, expected sometime before President Vladimir Putin’s second term as president expires in 2008. The basic parameters of the deal were agreed to earlier this year, and reflect, among other things, the expansion of the EU to include a number of eastern European states to which Russia already delivers steel. |
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Global steel output to top billion-tonne mark this year It may be a case of shooting oneself in the foot. In the biggest annual increase in the history of the steel sector, ’04 will see factories smash the billion-tonne barrier as initial fears of a shortage push the industry into overkill. Increased demand from China had initially raised the specter of scarcity, forcing clients to stock up from the nearest mill. But with steel factories showing their mettle, there’s a good chance that the sector may have punctured it 3-year boom by producing more than the world can consume. For domestic steel companies planning capacity expansions, the bust in steel prices may come just when they were hoping to cash in. Over ’04-07, outside of China, an additional 45m tonnes/year of new capacity is likely to be built, with the Middle East and India accounting for most growth. The year began with fears of the possibility of a steel crunch due to a shortage of raw materials. In fact, production will rise by 72m tonnes. Analysts are now pegging global steel output in ’04 at 1,035m tonnes, up 7.5% from 962,727 tonnes in ’03. But the moot point is whether the world can consume so much steel. According to the International Iron & Steel Institute, global steel consumption will top 1bn tonnes in ’05, rising 4%. China will account for about 280m tonnes of this. During ’05-07, annual increases are pegged at 3%. |
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Nissan says steel shortage may reduce March output Nissan Motor Co chief executive Carlos Ghosn saw a risk that the company’s vehicle output in Japan could be reduced by 15,000 units in March due to a shortage of steel. ‘Our projection is that January and February should be okay, but in March there is still a risk of further supply constraints,’ he said, adding that this could result in lost production of 15,000 cars for Japan’s second-largest auto maker. An output loss of 10-15,000 units could dent profits by 6 billion yen ($58.46 million), he said at a news conference to mark the launch of the company’s new Lafesta model. Nissan, 44 per cent owned by French car maker Renault, in a rare move said last month that it would stop production at some of its Japanese car plants for five days due to a steel shortage. The suspension at three of its four domestic plants on November 29 and 30 and December 6-8 was expected to result in lost production of about 25,000 vehicles to be made up early next year, the company had said. Nissan’s problem arose after the roll-out since early September of a string of new models such as the Tiida compact car and Fuga luxury sedan for which orders outpaced projections. After nearly a year of no new models in Japan, Nissan is flooding the market with six new ones between September and next January as it races to meet its commitment of selling 3.6 million vehicles in the 12 months to September 2005, or 1 million more than it sold in fiscal 2001. The shortage has forced Nissan to seek an emergency supply of steel products from South Korean steel maker Posco Co Ltd, which used to provide a small amount of steel to the auto maker. |
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Caparo group acquires five steel cos Lord Swraj Paul´s Caparo group announced acquisition of five European steel companies with a combined annual sales turnover of approximately 135 million pounds (Rs 1090 crore) for an undisclosed sum. The acquisitions, which will increase the group’s turnover by 25 per cent, include Britain’s leading manufacturer and distributor of precision steel tubing and assemblies, Tyco Tube, which employs over 800 people and which has sales of approximately 83 million pounds last year. It has eight factories in West Midland region. Another new addition to the steel empire founded by the Labour peer in 1968 is Tyco Strip, a leading international supplier of specialised cold-rolled steel strips which are sold in more than 40 countries worldwide. The company had sales of approximately 36 million pounds last year and employs 400 people. Caparo did not disclose the cost of the acquisitions as it is a privately held group controlled by the Paul family. The Group’s steel manufacturing factories are located in UK, USA, Canada, Spain and India, where it has set up several plants in the last two years. The other company whose takeover by the Caparo PLC, the principal operating Division of Caparo group chaired by Lord Paul, was announced is Caparo’s competitor in industrial fasteners GKS-Centrepiece having sales of five million pounds, which, like Caparo, supplies products to automotive industry. Caparo already owns Britain’s largest fasteners manufacturer, Armstrong. Two more companies— Sytems Scaffolding Ltd, with a turnover of eight million pounds and LIPE, based in Barcelona, Spain, with a turnover of two million pounds— have been acquired by the Caparo Group. |
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