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| DECEMBER 2004 | |
| From the CEO's Desk | |
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Everyday, stock index is breaking new records and metal industry scrips are playing a major role in this growth. My friends from other industries and also from stock market keep on asking me, “ hay, what’s going on in your industry ? Why the share prices are shooting up ?” First of all, I feel that for many years, steel industry was neglected by investing community. The reasons are more than one. We had some extremely bad years in recent past. Also, the new project management of some of the big steel business houses had raised few questions in the minds of the investors. They felt that money was being siphoned out from the project and thus was made sick even before it commenced the production. The financial institutions were questioned about the procedure they followed for clearing any new project. Even many analysts felt that the steel consumption projections made by the ministry, which formed the basis of project clearance, were too optimistic. naturally, all this resulted in loss of confidence in the minds of investing community and thus steel stocks took a deep dive. Now, for the last one or two years, the things are different. The demand curve seems to be climbing up sharply, the international prices are riding high and again, like in 1992-93, lot of steel projects are being announced. Yes, the forecast for next 5 to 6 years is healthy and I do agree that the steel production of the country has to grow substantially to meet the domestic demand and also to cater to growing export markets. Many overseas companies are also looking at India as their prospective production base. Lastly, I feel that this is the time to be happy but more that than this is the time when we have to be very cautious, focused and transparent. We all know how important is investor support for an industry and fortunately we have managed to regain that after so many years. Thus, collectively we should not do anything which reduces the investor confidence and I can assure you that happy days are here - to stay !!! D.A.Chandekar |
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| Headlines
Ministry's close watch on steel price movement JSL to invest Rs. 9.5 bn for Orissa project Tata Steel, BlueScope Steel tie up possible Chhatisgarh to sign mega steel projects soon VISL requests rlys’ CBT listing NINL targets as the largest pig iron producer Tata Steel to set up another steel project Sail to invest Rs.6.75 billion Isuzu in talks to buy steel from US suppliers Baosteel to invest $10B in new steel mill ThyssenKrupp to expand capacity Nippon Steel ready to pay high to BHP for coal |
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Ministry's close watch on steel price movement The Ministry of Steel is carefully scrutinizing “price situation” in steel sector and will take appropriate action in time, if need be, steel minister Ram Vilas Paswan said. Though the government does not intervene in commercial matters like pricing, it has been interacting with steel producers `to ensure both adequate availability and stability of steel prices in the domestic market’. Under duel pricing scheme, some private companies are selling steel material like hot rolled coils at lower than international prices to domestic consumers for local use, and at global prices for exporters who value-add and convert them into cold rolled sheets and galvanised sheets for markets outside the country. This dual pricing formula has not found favour with the major steel PSUs. While washing his hands off the scheme, Paswan conceded that prices of most categories of steel increased marginally in October ’04, mainly due to global conditions and domestic revival in construction. Recently some private players, including Tisco, announced a hike of Rs.500-800 per ton of steel products and rescinded. Paswan has since sent warning signals to the industry that a regulator will be set up if required to check spiralling prices. Paswan claimed credit for general stability in prices since August ’04 when the government announced a cut in import duty rates. From 25 per cent at the start of ’04 the duty has come down to 5 per cent now. This has helped to reduce prices in the domestic market. |
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JSL to invest Rs. 9.5 bn for Orissa project The total project cost of the ongoing project of Jindal Stainless Ltd is estimated at Rs. 9.50 billion which would be funded with a debt component of Rs.6.30 billion. In the first phase, Rs.2 billion non-convertible debentures were placed in August this year at a fixed rate of 6.9 per cent. For the balance amount, the company has tied with several banks including State Bank of Indore, J&K Bank, State Bank of Hyderabad, State Bank of Travancore and State Bank of Saurashtra for a combined debt of Rs.4.30 billion at a rate of 7.25 per cent for a 10-year period. The ferroalloys project is scheduled to be completed in phases and the first phase, which is setting up the ferrochrome facility, is expected to be completed by end of the current financial year. |
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Tata Steel, BlueScope Steel tie up possible BlueScope Steel, the leading steel producer in Australia and New Zealand, has decided to invest AU$100 million for setting up manufacturing facilities in India, and is exploring the possibility of forming a joint venture with Tata Steel, reports said. Announcing the company’s decision to set up three manufacturing facilities in Pune, Chennai and New Delhi, BlueScope Steel CEO and Managing Director- Kirby Adams said that his company was currently engaged in a feasibility study with Tata Steel, and was exploring the possibility of forming a 50:50 joint venture to develop a metal coating and painting facility in India. The study is expected to be concluded by May, 2005. The announcement on the company’s website further added: ‘The discussions with Tata Steel are proceeding on the basis that, should a decision be made to commence construction of a coating and painting facility, the new investments announced recently would form part of that 50:50 joint venture.’ The Australian steel major also plans to establish a network of 18 new sales offices at locations around India, with sales planned to commence in 2006. It currently operates 75 manufacturing plants across 16 countries, including 12 in Asia and the Pacific. The facility in Pune serving the burgeoning western region is expected to be commissioned in 18-24 months’ time.
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Bhilai Steel Plant of Steel Authority of India Limited will be investing Rs.50 billion during 2005-06, sources said. According to R.P. Singh, Managing Director of BSP, with this investment, the company will set up its third steel melting shop, go for total continuous casting, build a compact strip mill and also a bar and rod mill. Sail’s corporate investment plan states that BSP would be investing approximately Rs.90 billion to increase hot metal producing capacity from the present level of five million tons per annum to seven mt per annum by 2012. Once the total investment is made, BSP would be producing steel only through the continuous casting route. The share of semi-finished products would also come down to 6 per cent from the existing level of 26-27 per cent. Talking about the Rs.50 billion investment plan, Singh said, MECON has been appointed as a consultant and the report would be ready within two to three months. With the completion of the expansion-cum-modernisation programme, BSP’s product mix would change from 74 per cent long and 26 per cent flat to 53 per cent long and 47 per cent flat. The company is planning to a HR coil mill of 1.2-mt per annum capacity. It is hoping to product flat products of a minimum of 0.8 mm thickness. It would also be targeting the automobile and white goods manufacturers. The company is also planning to produce 260-metre-long rail. Recently, it started producing 78-metre-long rail. The plant would also be producing large diameter pipes. |
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Chhatisgarh to sign mega steel projects soon Steel giants are ‘lining up’ to invest Rs.100 – 500 billion in Chhatisgarh, Chief Minister, Raman Singh said while on completing successfully one year in the office. A final deal on the matter would be struck within 45 days, disclosed the chief minister. Singh admitted that there had been some hits and some misses on his government’s performance. The best result is coming in industries. Attracted by the state’s industrial policy announced last month, some steel giants, including Tata Steel, have been lining up to set up a plant with an investment of Rs.100 - 500 billion. He confessed that his government did better on the industrial front than on the law and order scene. |
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VISL requests rlys’ CBT listing Karnataka-based Visvesvaraya Iron & Steel Ltd (VISL), a special steel plant under Steel Authority of India (Sail), has urged the Indian Railways that it be included in the Railways´ CBT (Central Board of Traffic) programme at the earliest to be eligible for priority allotment of wagons for transportation of raw materials. An acute shortage of wagons for transportation of iron ore from National Mineral Development Corporation’s mines, also located in the same State, has hit hard VISL. Right now Sail’s integrated steel plants are covered by the CBT programme and, therefore, get priority in wagon allotment for transportation of raw materials. However, VISL, not being covered by the programme, is denied of the facility. Meanwhile, Sail has sent an SOS to the Railway Board seeking immediate allotment of more wagons for evacuation of finished steel out of the Durgapur Steel Plant. The availability of wagons to DSP has been less than satisfactory since the beginning of the month, it is said. Against the daily average requirement of 50 wagons (Box G type) per day, the average daily allotment so far has been in the range of 28 wagons. The situation has been particularly bad in recent times. This has resulted in the accumulation of finished steel within the plant. According to an estimate, the stock has touched nearly 55,000 tons. The uneven supply of wagons has also led to delay in rake formation, causing higher detention. It might be noted that the Railways often complains of detention of wagons at the plant level as it throws up a host of problems. The Sail sources, however, have pointed out that the average detention period in Durgapur plant in the past two months has been 64 hours, which, it is felt, is within the permissible limit. |
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NINL targets as the largest pig iron producer Neelachal Ispat Nigam Limited (NINL), promoted by MMTC and Orissa government, is set to emerge as the largest producer and exporter of pig iron in India, by maintaining record performance in production of hot metal and pig iron during the current year, reports said. The production of hot metal in November 2004 has crossed 55,000 tons mark for the first time, with blast furnace productivity reaching new heights. The plant has witnessed over 12 per cent growth in production of pig iron in the first eight months of the current year. Despatches have also kept pace with output by registering 20 per cent growth over the same period last year. Other units of NINL also posted crossed performance in November. This included highest sinter production of 81,000 tons in a month, lowest gross coke consumption, highest level of traffic handled in the plant both by road and by rail. Similarly in Konark Met Coke Ltd, a sister concern of NINL, the coke oven and by-product units have recorded their best monthly performance in November, 2004. With adequate arrival of coking coal from Paradeep and record despatches of coke surplus to captive coke demand, KMCL currently is supplying coke to major consumers in the steel sector in India which otherwise import the product. The by-product plant of KMCL has also done well with record production and despatches of crude tar, ammonium sulphate and coke fractions. NINL has so far exported more than Rs.2 billion worth of pig iron through Paradeep port in the current year. The export performance is going to be enhanced further in the remaining four months. With orders in the pipeline, export performance of the company will be fulfilling its entire commitment for export obligation which NINL had availed at the time of import of blast furnace and other capital equipment under EPCG Scheme. |
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Tata Steel to set up another steel project Tata Steel plans to set up a 3-mt-a-year integrated steel plant, for which it is in talks with a State Government, sources said. The company is also negotiating with another State to locate another steel plant. The proposed plant would see the commercial production within three to four years. The proposed 3-mt plant does not form part of Tata Steel’s announced plans to increase its production capacity to 15 mt a year by 2010. This includes increasing capacity at its Jamshedpur plant from 4 mt now to 7.4 mt by August 2008, the acquisition of NatSteel in Singapore, which will bring in another 2 mt, and the proposed 6-mt plant in Orissa. |
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Essar Steel has evinced its interest in acquiring 51 per cent stake in Hygrade Pellets (HGPL) and 100 per cent stake in Steel Corporation of Gujarat (SCGL), from Stemcor of UK. To finance these acquisitions Essar Steel (ESL) will issue convertible instruments overseas for an aggregate amount of $500m. The acquisition and issue of convertibles is dependent on Essar Steel’s arriving at an agreement with Stemcor on pricing and related issues and subject to necessary approvals from shareholders, lenders and regulatory authorities. Essar Steel has taken an in-principle approval from its board to acquire Stemcor’s holding in SCGL and HGPL. HGPL’s assets include a 3.3 mt per annum pellet plant, which manufactures iron ore pellets at Visakhapatnam. The capacity of the plant is now being increased to 7 mt per annum. Other assets of HGPL include a 8 mt beneficiation project, a 7 mt capacity slurry pipe line and a captive power plant. As part of the deal Essar was paid Rs.5.20 billion in cash consideration and Rs.1.13 billion of debt was transferred from ESL’s books to HGPL’s books. ESL currently holds redeemable preference shares of Rs.3.12 billion in HGPL. SCGL mean while was set up by Stemcor to produce cold rolled steel and galvanised steel and has a capacity of 1.1 mt. |
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Sail to invest Rs.6.75 billion In order to cash in on the opportunities thrown open by rising world steel demand, state-owned Sail’s board has cleared Rs.6.75 billion investment for an up-gradation scheme. ‘The Sail Board of Directors have given the go-ahead for a number of projects involving a total investment of Rs 675 crore. The projects, aimed at upgrading technology in existing production facilities, are part of first phase of the company’s growth plan that envisages increasing production of value-added steels by the year 2012,’ Sail sources said. Sail’s Corporate Plan 2012 provides a blueprint for the company’s growth in the coming years, in tandem with a growing market, the company said in a statement, adding it would increase the hot metal production to 20 mt from the existing level of 13 mt. The saleable steel production has been pegged at 17.38 mt by 2012 compared to the current level of 10.73 mt. In view of emerging market requirements, Sail has also planned to raise its output of finished steel to 16.6 mt by 2011-12 from 8.6 mt now and would reduce generation of semi-finished steel to five per cent from 20 per cent now. ‘This will enable inclusion of more value-added products in the company’s product basket. For realistic achievement, the plan has been split into two stages — Stage I pertaining to the period up to 2006-07 and Stage II up to 2011-12,’ the statement added. |
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Isuzu in talks to buy steel from US suppliers Isuzu Motors Ltd. is in talks to buy steel from US steel makers next year in the wake of tight global supply, reports said. A spokesman for the Japanese truck maker said the company is in talks with more than one U.S. steel maker with the backing of General Motors Corp. (GM), Isuzu’s top shareholder. The amount and timing of the planned purchases have not been decided yet. Steel products from the U.S. suppliers will be shipped to Thailand where Isuzu manufactures pickup trucks, the spokesman said. Such negotiations became possible after U.S. car makers cut output due to declines in domestic sales, he said. Isuzu’s production in Japan is declining, but the company expects to post a record group net profit in this fiscal year to March, supported by strong overseas sales. As the tight supply of raw materials for steel production makes it difficult for Japanese steel manufacturers to raise output, auto makers are moving to diversify their sources of steel. Isuzu is in talks to buy steel products from South Korea’s Posco for the first time, the spokesman said. Isuzu is also negotiating purchases from a Brazilian steel company, but the spokesman declined to give details. The steel supply shortage, caused by booming demand in China, has become a big headache for auto makers. Nissan Motor Co., unable to buy enough steel from its Japanese suppliers, plans to halt operations at some of its car plants in Japan for five days starting late this month. Hit by the coal supply crunch, Japanese steel makers are trying to increase long-term coal purchasing deals and boost investments for coal mine development. |
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Baosteel to invest $10B in new steel mill Baosteel, China’s largest steel maker, plans to invest $10 billion to build a plant in the country’s southern Guangdong province in an attempt to become one of the world’s top three steel producers, a report said. Citing an unnamed company source, the report says Baosteel plans to build a super large steel plant in the southern city of Zhenjiang in the first quarter of 2005. The Shanghai-based steelmaker, currently ranked fifth in the world based on production, expects a reply soon from the central government on its approval application. The project was submitted to the government before China adopted investment curbs to cool parts of its overheated economy, including the steel sector, the report says, citing an official from the local government. The project will be undertaken in three phases and will take 10 years to complete, the report says. On completion of stage three, the plant’s total annual production capacity is expected to reach 20 million metric tons, up from an initial output of 8 million tons. The plant will only produce refined steel products, which are currently imported into China. Strong demand from China for imported steel products contributed to a sharp rise in world prices in the past year. Building the plant in Guangdong will also put Baosteel closer to major customers in the southern province, such as automaking joint ventures involving Honda Motor Co. Ltd and Toyota Motor Corp. |
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ThyssenKrupp to expand capacity ThyssenKrupp Steel, a subsidiary of ThyssenKrupp AG said its EBOR Edelstahl plant in Sachsenheim, in the southwestern Baden Wuerttemberg state, will invest EUR7 million to extend capacity. The new facility will include a grinding and brushing line for stainless-steel finishes. Meanwhile, ThyssenKrupp Acciai Speciali Terni SpA, a major European stainless steel producer and nickel consumer, avoided a strike planned Dec.14, a spokesman of ThyssenKrupp Steel AG said. ThyssenKrupp Steel, a ThyssenKrupp AG company, owns the Italian company, which is also known as AST. “There was a meeting between the union the secretary general of state in Rome and he helped mediate the matter. The strike was canceled,” spokesman Erwin Schneider said. A strike at the company could be bearish to nickel consumption. In 2004, the producer is expected to consume around 41,000 tons of primary nickel and about 30,000 tons of secondary nickel from stainless steel scrap. AST has a capacity to produce 70,000 metric tons per year of electrical steel and 1.2 million tons/year of stainless steel. Unionized workers at AST threatened a strike last week in response to a plan to shut down the loss-making electronic steel production plant at AST, according to Schneider. The shutdown plan aimed for September 2005 won’t effect the stainless steel production site, which is the core business of the company, he said. |
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Nippon Steel ready to pay high to BHP for coal Nippon Steel Corp. has agreed with BHP Billiton Mitsubishi Alliance (BMA) to pay over US$120 per ton for coking coal, a record high and more than double this year’s level. The agreement between Nippon Steel and the joint venture operated by BHP Billiton Ltd. (BHP) in Australia’s Queensland state could put pressure on other Japanese steel producers to agree to similar price hikes with suppliers of coking coal, a key ingredient in making steel. The higher coal price will likely prompt Nippon Steel to try to pass the extra cost on to its customers such as car makers, ship builders and machinery manufacturers in the form of higher steel prices. The spokesman said that would “make sense.” The spokesman said he couldn’t comment on any impact on Nippon Steel’s earnings from the higher coal costs. The company and rivals such as JFE Steel Corp. have been rushing to keep up with surging demand from practically all of Japan’s major industries as well as from China, where rapid economic growth is driving up steel demand. Nippon Steel has already been trying to negotiate higher prices with Japanese customers in an effort to close a gap between prices of steel plate sold in Japan and prices of the same product on international markets. Steel consumers such as car makers appear to be in a weak bargaining position. Nissan Motor Co., for example, recently had to suspend car production at some plants because it couldn’t get enough steel sheet to meet its needs, and it warns it might have to halt some output again in March if the problem persists. Suzuki Motor Corp. has decided to forgo previously planned production increases this month for the same reason. |
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Brazil’s Gerdau to erect new steel plant Brazilian long steel maker Gerdau SA is all set to announce plans to erect a new steel unit in Rio de Janeiro state, a spokeswoman for the company said. The unit will be located near Gerdau’s existing Cosigua plant and will produce special long-rolled steel products, mostly to supply the domestic auto industry. The spokeswoman declined to comment further but said Gerdau executives will release details about the planned investment soon. The new unit is estimated to cost Gerdau more than 1 billion reals ($1=BRL2.74). Gerdau announced in October plans to invest BRL750 million to build a new steel mill in Sao Paulo state with the capacity to produce 1.3 million tons of steel and 1.2 million tons of reinforcing bars per year. Steel production will start in 2005, while the lamination phase, in which steel is rolled into the finished product, will come online in April 2006. |
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Usiminas to raise steel output by 2M tons Brazil’s flat-steel makers Usiminas plans to invest between $700 million and $800 million to step up its annual steel production to 6.8 million tons from a current 4.8 million tons, the company’s president, Rinaldo Soares, said. The company currently is doing a viability study on the investment project that is slated to be completed in the first half of 2005. The necessary construction for the expansion in production could be ready by 2008. It forecasts domestic steel production to rise 5.7% to 32.9 million tons in 2004 and another 2.1% to 33.6 million tons in 2005. Brazil is one of the world’s top 10 steel-producing nations, and local steelmakers gained hefty profits this year as unexpectedly steady demand from China’s growing economy boosted steel prices across the globe. |
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