Steel Insights, August 2015

4 Steel Insights, August 2015

COnTEnTs

48 | INTERVIEWKIOCL has potential to bounce back on its ownTurnaround plans include acquisition of mines, setting up pellet plant & exploration among others .

22 | SPECIAL FEATUREPOSCO Odisha project on hold, co eyes downstream presencePosco to do more downstream work; likely pact with Odisha mill for Finex plant.

56 | CORPORATEJSW Steel consolidated Q1 net loss at `107 cr Dolvi capacity expansion on schedule; sees demand pick up, albeit at slow pace.

18 | COVER STORY Revival of sponge iron sector hinges on steel demand: Mudgal Sponge makers struggle to find alternatives routes to reduce costs to survive.

6 | COVER STORY Will DRI get back its lost shine?As steel mills struggle for survival against imports, sponge iron segment seems to be the hardest hit.

26 Can India meet its iron ore requirement as mining auctions start?

30 RBI keeps interest rates unchanged 31 Land main barrier for global steel biggies: E&Y 32 Quality crackdown on 3 types of stainless steel 33 Negative-to-stable outlook on shipping sector 34 DragonfiretoohottohandleforIndiansteel

sector? 36 Indiaseestransitioninoccupiedofficespace:

Report 38 Real estate turnaround to take some more time 40 Auto sales piggy-back good monsoon 44 Coking coal offers lose steam in July 45 SAIL capacity to increase 77% by January:

Tomar 46 Enhanced R&D must for Indian steel sector:

Tomar 47 Steel industry woes not due to FTA, says Govt 51 Q1 iron ore handling by major ports down 62% 52 KrishnapatnamPorttofocusoncoastaltraffic 53 Dualclassificationmisusetobeaddressed:

SER 54 Global crude steel output dips 3% in June

m-o-m 55 Essar Steel launches online B2B marketplace 57 VedantaQ1netprofitdrops35%to`866cr 58 Corporate snippets 61 Primetals to supply equipment for relining

ROGESA BF 63 Primetals supplies hot strip mill for RSP, SAIL 64 Sponge iron tech that cuts energy

consumption, hikes output 66 ASEAN offers big market to Indian steel sector 71 Iron ore prices, troubled time for Indian steel

industry create buzz 72 Price data 73 Ferro alloy data

COvER sTORy

Will DRI get back its lost shine?As Indian steel mills struggle for survival against huge imports, sponge iron segment seems to be the hardest hit


Steel Insights, August 2015 7

COvER sTORy

Tamajit Pain

Within the Indian steel industry, the sponge iron segment was the first to be delicensed way back

in 1985, much before the delicensing and opening up of the Indian economy in 1991. At that time India’s second-largest import (after crude oil) was steel melting scrap. A few coal-based plants like Sponge Iron India Limited, Orissa Sponge Iron Limited, Ipitata Sponge Iron Limited, and Sunflag Iron & Steel Limited came into existence in the ’80s based on different technologies like SL/RN technology, CODIR, ACCAR, OSIL Process etc. The early plants came with a focus on high quality equipment and raw materials, product quality and environmental considerations.

During this time, the government also encouraged the gas-based sponge iron industry as there was surplus natural gas. From 1985 to 1995, apart from few coal -based plants, three large gas-based plants of Essar Steel, with a capacity of 3.60 million tons per annum (mtpa), Vikram Ispat (0.90 mtpa) and Ispat Industries (1.60 mtpa) also came into existence.

From 2003, the coal-based sponge iron route dominated because of limited availability of natural gas and fast growing demand of metallics. In fact, no gas-based sponge iron/HBI plant came up after 1994. During 2003-2008, there had been a rapid growth of coal-based sponge iron plants. The rapid growth of the sponge iron industry was fuelled by a rise in steel-making capacity through the induction furnace (IF)/ electric arc furnace (EAF) route to meet the fast-growing demand of steel in the country, high price of steel melting scrap and its restricted availability.

However, from 2009 onwards there has been almost stagnation in the sponge iron industry due to several reasons like de-acceleration in steel demand, restricted availability of vital inputs like iron ore, non-coking coal, natural gas and environmental related issues.

As per the available information with Sponge Iron Manufacturers Association (SIMA), there were more than 330 sponge iron plants, including three gas-based, covering a capacity of about 48.63 mtpa.

Geographically, these units are mainly

concentrated in Chhattisgarh, Odisha, West Bengal, Jharkhand, Gujarat, Maharashtra and Karnataka. Major clusters of sponge iron plants are Siltara (Chhattisgarh), Kuarmunda (Odisha), Saraikela - Kharswan (Jharkhand), Jharsuguda (Odisha), West Midnapur (West Bengal) and Bellary (Karnataka).

For the last few years, sponge iron production in India has been continuously declining.

It is a matter of great satisfaction that India is the largest sponge iron producer in the world for the last 10 consecutive years. India contributes about 30 percent of the global sponge iron production. It is expected that the country will continue to maintain its supremacy for some more years in spite of the various problems being faced by it.

Problems of the industry Presently, this important segment of the Indian steel industry is passing through its worst crisis. Following are the main problems and challenges being confronted by the Indian sponge iron industry:

Imports of steel melting scrapDue to the slowdown in the world steel industry, a lot of steel melting scrap is finding its way into India. Lower import duty on steel melting scrap has further made it an attractive preposition.

Imports in 2012-13 crossed all earlier records. It is estimated at 8.50 million tons, a growth of 136 percent over 2010-11. Imports in 2014-15 stood at 5.78 million tons as against 4.92 million tons in 2013-14. It may also be mentioned that import of this huge quantity has led to the outgo of valuable foreign exchange of more than $3.5 billion, which has impacted India’s foreign trade balance and widened the current account deficit (CAD) besides severely effecting the Indian sponge iron producers.

Threats from imports of DRI/HBIImports of DRI/HBI are also increasing at an alarming rate. It was almost nil in 2010-11, but increased to 20,100 tons in 2014-15.

TechnologySecond-generation technologies based on mainly SL/RN were developed with a view to drastically reducing capital cost. Such plants were sub-optimally designed compromising on the material quality of

plant and machinery, life time, capacity and quality parameters.

Most small capacity plants are performing badly with frequent breakdowns, leading to increased maintenance cost with capital repairs of vital equipment within 10-15 years. Technological limitations for exploiting inferior grades of iron ore and coal are also a cause of concern.

EnvironmentSmall plants are perceived to be highly polluting in nature. While the gas-based sponge iron process is highly eco-friendly and energy-efficient, the coal-based sponge iron process is a highly energy intensive activity and leads to higher carbon load on climate, especially by smaller units.

Struggle for survivalOnce the largest sponge iron producer in the world, Indian manufacturers today face pressure and are struggling for survival.

The industry has been cornered by quite a few issues, including restricted availability of vital raw materials such as iron ore, non-coking coal and natural gas at affordable prices, poor quality of raw materials, threat

DRI production – India v/s worldfig in ‘000 tons

Year DRI production in India

DRI production in the world

2010 26302 57854

2011 27560 63474

2012 19799 55360

2013 16893 63495

2014 18067 60519Source: World Steel Association

Steel melting scrap importsin million tons

Year Volume

2006-07 2.2

2007-08 2.6

2008-09 3.2

2009-10 4.4

2010-11 3.6

2011-12 4.9

2012-13 8.5

2013-14 4.9

2014-15 5.7Source: Steel Ministry & Insights Research


sPECIAL FEATURE

Steel Insights Bureau

As per the report of the Working Group on Steel for the 12th Five-Year Plan (FYP), the projected requirement of

iron ore in the country for 2016-17 would be about 206 million tons (mt).

SAIL has prepared a “Vision 2025” plan under which hot metal production capacities of its plants would increase to 50.4 million tons per annum (mtpa) by 2025-26 in phases, Minister of State in the Ministry of Steel and Mines Vishnu Deo Sai has informed Parliament.

SAIL would require 95.76 million tons of run-off mine (ROM) iron ore per annum for production of 50.4 mt per annum of hot metal.

Public sector units (PSUs) are optimising the use of raw materials to ensure its operational efficiency by different means like using beneficiation and pelletisation of iron ores, optimisation of coal blend and utilisation of metallurgical wastes, substitution of cheaper nut coke in place of blast furnace coke, pulverised coal injection in blast furnace to partially replace costly coke.

India’s iron ore production in 2013-14 was around 152.43 mt, while reported consumption was around 110.50 mt.

The last few years’ trend showed iron ore consumption has grown by around 10 percent from 2011-12 to 2013-14, as per official data.

Iron ore mine auctions to start soonMeanwhile, India’s Supreme Court has directed that 15 iron ore mines in the southern province of Karnataka will have to be put up for auction and the process completed within the next 32 weeks, in an effort to augment output levels of iron ore from the current level. These 15 mines are expected to yield 6-7 million tons of iron ore.

Can India meet its iron ore requirement as mining auctions start?

Production and reported domestic consumption of iron ore during the

last three years(In million tons)

Iron ore 2011-12 2012-13 2013-14 (P)

Production 168.58 136.62 152.43

Reported Consumption

100.57 103.40 110.50 (E)

P: Provisional; E: EstimatedSource: Indian Bureau of Mines


‘KIOCL has potential to bounce back on its own’

KIOCL, which has been only exporting pellets since the closure of its Kudremukh mine in 2006, has drawn up extensive plans to bounce back, Chairman-cum-Managing Director Malay Chatterjee

tells Rakesh Dubey of Steel Insights. The proposals include acquisition of captive mines, setting up a pellet plant in tie-up with Bokaro Steel Plant, contracts with NMDC and OMC, MoUs with APMDC and RINL for exploration and exploitation of mineral deposits, diversification into solar energy, e-commerce and eco-tourism.

What is the current pellet plant capacity of KIOCL? Any expansion plans ahead?

The pellet plant capacity at KIOCL Limited in Mangalore is 3.5 million tons per annum. Currently, the country has surplus iron oxide pellets in view of the imposition of the export duty. But, looking at the macro picture and the Government of India’s (GoI’s) Make-in-India initiative, with special emphasis on infrastructure and with the depletion of quality iron ore lumps, the country is left with the only alternative of converting iron ore fines into iron oxide pellets.

The capacity expansion is subject to allotment of captive mines to KIOCL.

KIOCL is operating as an export-oriented unit (EOU). Please name the countries you are exporting your pellets to and any plans to expand geographies?

KIOCL started as a 100% EOU and when it had its captive mines, pellets used to be exported to Romania, Hungary, Yugoslavia, Czechoslovakia, France, Iran, Iraq, Bahrain, USA, South Korea, North Korea, Japan, Taiwan, China etc. After closure of its captive mines, majority of KIOCL’s exports were to China. Recently, after one shipment, KIOCL could open up exports to the Iran market.

Currently, KIOCL is exporting its pellets to China and Iran. Also, discussions are a at very nascent stage for exporting pellets to countries utilising high grade iron ore fines imported from Brazil and Chile.

KIOCL’s pellet plant capacity utilisation levels have dropped by 23% in FY15, resulting in 54 percent lesser production over last year.

KIOCL is working under severe strain after closure of its captive mines at Kudremukh, without ore and market security. Adding to the woes during FY15, the international iron ore market saw steep fall in prices, by more than 50 percent, due to sluggish steel demand and oversupply of iron ore.

In this scenario, further burdened with additional charges by railways, export duty etc, Indian ore/pellet exports are badly hit, and KIOCL is no exception. The domestic pellet market is also in crisis with the pellet

InTERvIEw


Kingshuk Banerjee

Scene 1: It was the mid-90s of the last century. On a mid-December morning, Kolkata was holding a mega

business seminar where a substantial number delegates from South East Asian nations were listening with rapt attention to the Look East speeches of Indian political leaders and industrial captains.

Few years prior to that mega show, the P V Narasimha Rao-led government had announced the Look East policy to cater to the ties between Delhi and South East Asian nations. It was, in effect, a sea change in New Delhi’s outlook.

Scene2: Indian New Prime Minister Narendra Damodardas Modi was addressing an elite gathering of world leaders which included US President Barack Obama, Russian Premier Dmitry Medvedev and Chinese Premier Li Keqiang apart from leaders from South East Asian nations.

When he uttered before this elite gathering of East Asia Summit in the Myanmarese capital Nay Pyi Taw that New Delhi’s Look East Policy would now be christened as Act East, the whole audience gave him a standing ovation.

So what is this Look East and latest reincarnation of Act East? Before that let us know ASEAN.

ASEAN storyThe Association of South East Asian Nations (ASEAN) is a political and economic organisation of 10 South East Asian nations. It was formed on August 8, 1967 in Bangkok by the then foreign ministers of Indonesia, Malaysia, the Philippines, Singapore and Thailand.

Since then, membership has expanded to include Brunei, Cambodia, Laos Myanmar and Vietnam. Its aims include accelerating economic growth and social progress among its members, protection of regional peace

ASEAN offers big market to Indian steel sector

and stability, and opportunities for member countries to resolve differences peacefully.

ASEAN covers a land area of 4.4 million square kilometres, ie, 3 percent of the total land area of the Earth. ASEAN territorial waters cover an area about three times larger than its land counterpart. The member countries have a combined population of approximately 625 million people, 8.8 percent of the world’s population.

In 2015, the organisation’s combined nominal GDP had grown to more than US$2.6 trillion. If ASEAN were a single entity, it would rank as the seventh largest economy in the world, behind the US, China, Japan, Germany, France and the United Kingdom.

Under the slogan of One Vision, One Identity, One Community, ASEAN seeks economic integration by creating an ASEAN Economic Community (AEC) by end-2015 to establish a common economic market like European Union. The average economic

InTERnATIOnAL


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Steel Insights, August 2015

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