In Commodity News 29/02/2016
India became the third largest producer of steel in the world in January 2015, leaving behind US as the 4th largest producer. Bucking the global trend of a consistent decline in steel production, India is the only country among major steel producing countries such as China, Japan, South Korea and the US, which recorded a positive trend in steel production and consumption in 2015. Though world steel output went down 2.8% to 1.6 billion tone, reflecting a global economic slowdown.
Current scenario
The Index of Mineral production for MCDR minerals (April -October 2015) increased to 114.1, which was 105.0 in the corresponding period of last year (CPLY), showing a cumulative growth of 8.7%. Iron ore production, which was 23.36 MT in February, 2009, came down to 8.12 MT by September, 2014. With the amendments introduced in MMDR Act in March 2015, the sector has shown revival. The Monthly production of iron ore is now increasing. The production was 8.12 MT in September, 2014, 12.44 MT in March, 2015, 11.86 MT in July, 2015, 10.8 MT in September 2015 and 12.9 MT in October 2015. India is again self-sufficient in iron ore. The production of many other key minerals has also shown a positive growth in the period from April to October 2015 in comparison with last year on Y-o-Y basis. Some of them include Bauxite (24%), Chromite (13.8%), Lead conc. (35.5%), Zinc conc. (18.5%) and Apatite and Phosphorite (104%).
Production & Consumption
During April-December 2015-16, crude steel production was 67.229 mt, showing a growth of 1.1% compared to same period of last year. The ISP Producers (SAIL, RINL, TSL, Essar, JSWL & JSPL) together produced 35.229 mt during April-December 2015-16, which was a growth of 2.5% compared to same period of last year. The rest i.e. 32 mt came from the other producers, showing a decline of 0.4% compared to same period of last year. Compared to November 2015, overall crude steel production increased by 2.9% in December 2015 (7.495 mt) led by increase of 5.5% in case of ISP Producers. Compared to December 2014, overall crude steel production increased by 0.4% in December 2015 led by increase of 3.2% in case of Other Producers while production declined by 2% in case of ISP Producers.
During April-December 2015-16, hot metal production was 42.716 mt, a growth of 2.5% compared to same period of last year. The ISP Producers together produced 35.234 mt during April-December 2015-16, which was a growth of 3.3% compared to same period of last year. The rest i.e. 7.482 mt came from the Other Producers, which was lower by 1.5% compared to same period of last year. Compared to November 2015, overall hot metal production increased by 2.4% in December 2015 (4.701 mt) led by increase of 3.3% in case of ISP Producers. Compared to December 2014, overall hot metal production decreased by 1.7% in December 2015 led by decrease of 1.4% in case of ISP Producers and 2.7% in case of Other Producers.
Production for sale of total finished steel at 68.042 mt, registered a decline of 1.4% during April December 2015-16 compared to same period of last year. During April-December 2015-16, the ISP Producers produced 34.852 mt, which was up by 0.3% compared to same period of last year, while the rest was the contribution of other producers, down by 3.3% compared to same period of last year. Compared to December 2014, overall production for sale in December 2015 decreased by 1.4% led by decrease in case of Other Producers (by 5.4%).
Meanwhile, India’s consumption of total finished steel witnessed a growth of 4.7% in April-December 2015-16 (59.083 mt) compared to same period of last year. The growth was mostly led by imports (up by 29.2%) given that production for sale was down by 1.4% during this period. Domestic steel consumption in December 2015 (6.929 mt) increased by 17.3% compared to November 2015 and by 1.2% compared to December 2014.
Import & Export
Import of total finished steel at 8.389 mt in April-December 2015-16 saw a growth of 29.2% compared to same period of last year. Imports in December 2015 (0.941 mt) increased by 22.8% compared to November 2015 but decreased by 1.4% compared to December 2014. India was a net importer of total finished steel in the current fiscal so far.
Meanwhile, export of total finished steel was down by 29.7% in April-December 2015-16 (2.91 mt) compared to same period of last year. Exports in December 2015 (0.389 mt) increased by 60.7% compared to November 2015 and decreased by 18.6% compared to December 2014.
Government initiatives
Government dedicates two modernized steel plants to the nation: CPSEs under the Ministry of Steel completed modernization and expansion projects to enhance their crude steel capacity. Two projects at SAIL’s Rourkela Steel Plant in Odisha and IISCO Steel Plant at Burnpur, West Bengal. These two plants added a steel production capacity of nearly 5 million tonnes to the country.
Government establishes SRTMI: Steel Research and Technology Mission of India (SRTMI) was established to spearhead Research and Development (R&D) activities of national importance in collaboration with steel industry with an initial corpus of Rs 200 crore.
Government has signed 2 MOUs for SPVs for Greenfield steel plants: In order to increase the domestic capacity of steel production, a concept of Special Purpose Vehicle (SPV) has been introduced. Two MOUs have already been signed by the states of Chhattisgarh and Jharkhand for setting up Greenfield steel plants with initial capacity of 3 million tonnes per annum (MTPA) each, to be later enhanced to 6 MTPA. More than Rs. 70000 crore will be invested for setting up of these steel plants.
Skill Development Initiatives: Ministry of Steel has entered into a strategic partnership through a MoU with Ministry of Skill Development and Entrepreneurship for facilitating skill development through CPSEs of the Ministry. SAIL, RINL & MOIL each signed MoUs with National Skill Development Corporation for skill development.
Government established NMET to enhance Mineral Exploration: National Mineral Exploration Trust (NMET) has been established in 2015 to promote exploration in the country. The government has also opened up the arena of exploration to other agencies.
FDI in Metallurgical Industries
The Indian metallurgical industries attracted foreign direct investments (FDI) to the tune of $7.39 million or Rs 76.94 crore, in July- September 2015 period, down by over 90 percent, as compared to $132.99 million or Rs 844.95 crore, in April-June 2015 period. Indian metallurgical industries attracted 3.28 percent of total inflow in Q2FY16.
Recent developments
Government imposes MIP on 173 steel products: To check dumping from countries such as China and South Korea and support the ailing domestic steel producers, the government has imposed a minimum import price (MIP) ranging from $341 to $752 per tonne on 173 steel products providing relief to local steel makers hurt by an increase in cheap imports. The MIP is introduced against 173 HS Codes (iron and steel products) and the floor price on steel imports will be valid for six months. However, it will not apply on imports under the advance authorisation scheme and high-grade pipes used in the petroleum and natural gas industry. The notification also said imports/shipments under the letter of credit already entered into with foreign suppliers will also be exempted from this decision. While the duty on various steel products ranges between $341 per tonne and $752 a tonne, on ingots and billets, blooms and slabs, the MIP reads $362, $352 and $341 per tonne, respectively. On flat-rolled products of iron or non-alloy steel of a width of 600 mm or more and hot-rolled one, the minimum prices will be $445 and $500 on different items. On flat-rolled products of iron or non-alloy steel of a width of 600 mm or more and cold-rolled one, the figure stood at $560 per tonne. On products like corrugated flat-rolled products of iron/non-alloy steel, MIP ranged between $643 and $752. Further flat-rolled products of other alloy steel of a width of 600 mm or more, MIP reads between $445 and $752. The domestic steel producers have hailed the government’s decision saying that will ensure a level-playing field to the Indian steel industry which has been adversely affected by dumped imports from various sources. On the other hand the user industry cried foul, saying it would impact prices of raw materials.
MMDR Act amended to bring transparency: MMDR Amendment Act, 2015 introduced transparent and competitive e-auctions. This will enable to obtain an enhanced value of mineral resources. Around 35 mines/blocks have been notified for auction in the first phase.
PMKKKY launched for inclusive development: Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) was launched in September 2015, for the welfare of areas and people affected by mining related operations. This will be funded through contribution made to District Mineral Foundations (DMF). Annual accrual to DMF by lease holders will be to the tune of about Rs. 6000 crore.
Royalty revenues of states increase due to revision of royalty rates: Central Government has revised the rates of royalty for major minerals State Governments receive 100% of the royalty and thus are benefited through this increase in rates.
Devolution of greater powers to states as a measure of Cooperative Federalism: Central Government has notified 31 minerals as ‘minor’ minerals to delegate entire regulation for these minerals to States. This increased the number of minerals notified as ‘minor’ minerals from 24 to 55. Requirement of prior approval of central government has been done away with.
Corporate developments in the sector
Tata Steel SEZ, wholly owned subsidiary of Tata Steel is planning to invest about Rs 2,000-2,500 crore for development of infrastructure at Gopalpur in Odisha in the near term. The company has already spent Rs 1,000 crore to set up a 55,000 TPA high carbon ferro chrome plant and development of infrastructure. The SEZ has received clearance from Odisha government for setting up an industrial park.
The estimated Rs 5,000-crore joint venture between steel giant ArcelorMittal and state-run SAIL is most likely to be finalized this year with the Steel Ministry working towards formalizing the project. The proposed JV will construct a cold rolling mill and other downstream finishing facilities in India, touted as one of the fastest-growing automotive markets in the world with production expected to double between 2014 and 2020, from 3.6 million units to 7.3 million units.
Uttam Galva Metallic, a part of Uttam Galva Group, has signed an agreement with the South Korean alloy major Posco to deploy new technologies at its Wardha plant in Maharashtra. The agreement is for transferring the ‘finex’ or fine ore reduction process, which is an alternative iron making technology using iron ore fines, and CEM technologies for its plant in Wardha. CEM (compact endless casting and rolling mill) is a process to replace a large portion among the CR products with thin hot rolled products.
Steel Exchange India has signed a memorandum of understanding (MoU) with Andhra Pradesh Government for expansion of its steel plant in Vizianagaram district of Andhra Pradesh. The company moves for expansion of steel plant from 0.25MT to 1.25 MT at Sreerampuram Village in L.Kota Mandal, Vizianagaram district, with an investment of Rs 7,937 crore, in two phases with potential to generate 1,500 new jobs.
Budget expectations
Increase in import duty on steel long and flat products: Customs duty on imports of Iron & Steel at present is 10% on Long Products and 12.5% on Flat Products. In view of the continued economic slowdown in the country which had an adverse impact on the steel sector as also keeping in view the investments undertaken by domestic steel producers in anticipation of an increase in consumption in the country, there is an urgent need to provide protection to the domestic industry. This becomes all the more imperative in view of oversupply in the global market which has led to increased protectionism being resorted to by almost all the countries to protect their local industry. FICCI has urged government that the basic customs duty on all steel imports may be raised to 25%.
Import duty on Manganese ore, Chrome ore etc: Customs duty on Manganese ore, Chrome ore, Molybdenum ore, Vanadium oxides, Hydroxides and other salts of Oxo metallic Acids (Vanadium Oxides Concentrates and Ammonium Meta Vanadate) may be reduced to nil from the existing 2.5%.
Reduction in Customs Duty on Coking Coal: Import duty of coking coal has been increased to 2.5% in the Union Budget 2014-15. Coking coal is used largely by the steel industry. Negligible quantity of coking coal is available domestically, and thus the need is met mainly from imports.The zero duty on coking coal is in place since 1978. The increase in import duty from zero to 2.5% on coking coal has increased the cost of steel making substantially, leading to domestic steel being uncompetitive vis-à-vis imports. It will also contribute to inflation. It is therefore FICCI has urged government that the duty on coking coal be exempted as was the case prior to the Budget 2014-15.
Reduction of Basic Custom Duty on Metallurgical Coke: Basic Custom Duty on metallurgical coke has been placed at 5%. Coking coal, Steam coal and Met coke are key inputs in steel making and account for substantial portion of cost of production for Steel. Historically coal used for metallurgical purposes has enjoyed exemption as steel is critical in fuelling India’s growth. Subsequently, due to scarce availability of coking coal technology has been developed to use other coal (non-coking coal including what could be termed as steam coal) for metallurgical purposes through technologies such as COREX. FICCI has asked government that basic custom duty on metallurgical coke may be reduced to NIL.
Increase of Basic Custom Duty on LAM Coke: Basic Custom duty on LAM Coke be increased from 5% to 10% ad-valorem. LAM Coke is a value added product and made from Coking Coal at various captive and merchant Coke Oven Plants for onward usage for metallurgical purposes mostly in Blast Furnaces for Steel making. Devaluation of its currency by China has made its imports very cheap and Indian Coke Oven Plants are incurring losses.
Other expectations from budget 2016:
Reduction of custom duty on natural gas used for production of steel.
Reduction in import duty of iron ore to zero, from the currently levied 2.5%.
Import duty on Steel Grade Limestone and Dolomite to be reduced from 2.5% to NIL.
Reduction in Customs Duty on Ferro Nickel, Pure Nickel and Ferro Moly.
Import Duty on Electrodes, Refractory Material to be reduced to Nil.
Import Duty on Stainless Steel Scrap.
Customs Duty on Seconds and Defective Goods falling under Chapter 72 to be raised to 40%.
Excise Duty on fabricated steel structure undertaken by PEB/Pre-fabricators at their own premises to be reduced from the current 12% to 8%.
Outlook
Indian steel industry plays crucial role in development of nation and is considered as the backbone of civilization. Currently, India is the world’s third-largest producer of crude steel and is expected to become the second-largest producer soon. The sector is poised to perform well in coming time on the back of several government initiatives. To provide temporary respite from imports, the Government has increased Minimum Import Price (MIP) on steel. MIP is imposed on 173 steel products, ranging from $341- $752 per ton. New MIP rates would be applicable for a period of 6 months from the date of notification (February 5, 2016). On the concern side, India’s steel sector grew modestly in FY15 as compared to the robust growth in the last decade, impacted by both external and internal influences. The growth has been on back-foot due to factors like overcapacity of steel, cheap import of steel, falling crude oil prices and diminished demand. The heavy imports, a resultant of the availability of cheap steel products from the international market, led to a drop in demand and subsequently in sales. Moreover, the increased cost of imported raw materials like coking and thermal coal or natural gas, the price fluctuations, put an extra burden on the industry.
