June, 06 2005
Tata Steel, Chhattisgarh ink plant deal
Tata Steel has signed a MoU for setting up a 5 million tonnes per annum greenfield integrated steel plant in the Bastar region of Chhattisgarh, involving an approximate investment of Rs 5,000 crore, on Saturday.
The MoU was signed by Shivraj Singh, Principal Secretary (Industries and Mineral Resources Department) and Tata Steel MD B. Muthuraman at Raipur in the presence of CM Raman Singh. Muthuraman said, Our immediate task is to obtain all statutory clearances and start the work. For that, we are putting in place a project team at Raipur.
Bokaro's cement project cleared
The board of Steel Authority of India Limited (SAIL) has approved a proposal of Bokaro Steel Plant (BSL) for the setting up of a cement plant as a 50:50 joint venture. Expressions of interest would be invited soon. "We are open to any offer, including those from multinationals," said U. P. Singh, Managing Director of BSL, the largest public sector flat steel producer, a unit of SAIL.
Addressing visiting presspersons here on Friday, he said an investment of Rs. 320 crore was on the anvil for setting up a one-million tonnes cement plant with plans to double the capacity in tune with market response. "Easy availability of raw materials such as slag from the blast furnace made us conceive this project," Mr. Singh said.
After turning in a good year with healthy growth in topline and bottomline, the SAIL unit, is planning to consolidate its generating capacity that it now has under the Bokaro Power Supply Company Ltd (BPSCL), the equal joint venture SAIL had floated with Damodar Valley Corporation in 2002 for its existing 302 MW power plant. A Rs. 2,450 crore investment is proposed to augment the rated capacity of the existing plant (from 200 MW to 275 MW) while adding 500 MW of fresh capacity. This new project awaited the sanction of the boards of DVC and SAIL, Mr. Singh said.
Turning to steel, the MD said that overcoming the crisis caused by coal shortage in the first half of 2004-05, BSL ended the year with a turnover of Rs. 10,019 crore against Rs. 7,614 crore in 2003-04. The net profit stood at Rs. 3,290 crore against Rs. 1,120 crore.
Tata Motors relied totally on this SAIL plant for steel for its truck chassis, Mr. Singh said.
Local steel cos may opt for production cuts
Taking a cue from global steel manufacturers such as Arcelor, Mittal Steel and ThyssenKrupp, Indian steel producers may opt for a production cut to stem the fall of steel prices in India.
International steel manufacturers have cut production to reduce the oversupply in major markets. The international steel industry is likely to see a 50-m tonne production cut this fiscal to suck excess stocks out of the market .
An analyst tracking the Indian steel sector said, Although no domestic steel producer has announced any production cut, starving the consumer has been a common strategy deployed by steel producers the world over to prop up prices.
Domestic steel manufacturers cut prices by around Rs 2,000 per tonne from June 1, citing a lowering of international steel prices. The drop in steel prices domestic as well as international has been attributed to high inventories in major markets.
Officials from major Indian steel companies when contacted said that as of now their are no plans to cut production. An official from Ispat Industries said It would be too early to decide on a production cut, its not that I am incurring losses because of the price cut. The official added that cost of raw materials is also expected to reduce, which will compensate for the margins lost due to price reduction. Essar Steel officials also said that the company has not contemplated production cuts.
Industry watchers pointed out that production cuts by European and American steel majors forced Japanese mills to follow suit, resulting in yearly production targets being curbed by 4 per cent to 5 per cent. With annual production estimated to touch almost a billion tonnes, a 4-5 per cent production cut will add up to around 50million tonnes of steel not reaching global markets.
World number one manufacturer Mittal Steel has announced production cuts at its Sparrow Point, Maryland steel-making operations in US to reduce inventory and has curtailed hot rolled sheet production at its Indiana Harbour works.
While Arcelor, the worlds second largest steel producer based in Europe, will cut production by around one million tonnes in the first half of the year, ThyssenKrupp has already announced production cuts of around half a million tonnes in the second quarter of 05. Another European manufacturer, Salzgitter AG, will deprive the market of nearly 100,000 tonnes of steel.
The production cut announced by ThyssenKrupp accounts for 10 per cent of its capacity. The slowdown initiatives taken in February to reduce the output of its European installations are being extended in the second and third quarters, said an industry official.
Arcelor has said that the apparent demand of flat carbon steel in the European Union shows a decrease of 14 per cent due to the high level of inventories, imports and softening of real consumption at customer base.
Major steel prices reductions were witnessed mainly in the European and American markets. Prices of hot rolled coils in the US have fallen from around $700 per tonne to less than $600 per tonne while in Europe prices dropped from $620 to around $ 550 per tonne.
Steel firms pinch as rlys alter ore freight terms
The railways seem to be playing a cat-and-mouse game with the steel industry. In a move that was seen as favouring Indian industry, the railway budget 05-06 had increased freight for iron ore meant for export, while sparing domestic movement.
Now in a move that the steel industry is sure to complain about, the railways has brought the domestic movement in the same tariff bracket, negating the benefit bestowed in February. This move will impact the bottomline of steel producers by varying amounts.
In February, the railway budget changed the classification of iron ore meant for export. This translated into a 14% increase in freight charges.
Domestic users were spared the reclassification and freight rates remained unchanged for steel plants with railway sidings. This move, according to experts, was aimed at improving the availability of iron ore in the country.
This move was welcomed by the industry. Just three months after that the railways have now decided to remove the distinction between the ore meant for exports and that for domestic use.
This means that now the same classification will apply to both types of cargo and domestic movement of iron ore will incur the same charges as the iron ore meant for export. This classification means increased revenues for railways.
In FY06, the railways are expected to carry nearly 35m tonnes of iron ore. The freight increase would mean that the railways would garner around Rs 180 crore more this year.
When contacted, Ispat officials said that the hike would affect them to the tune of Rs 7.5 crore. This is due to most of their iron ore transport occurring by the sea route.
Essar Steel currently transports iron ore to its pellet plant over rail, but is expecting its slurry pipeline for transporting ore, to become operational over the next couple of months.
That will eliminate the rail link from their supply chain. Hence they will be minimally affected by the change. Rough calculations put the figure at around Rs 4-5 crore.
The bigger players are expected to be hurt more. The freight hikes effected last year cost SAIL around Rs 150 crore. This time around, the impact could be around Rs 60 crore. This figure is based on projected volumes for 05-06 and could be higher.
The current market conditions do not allow the steel makers to pass on the costs to their customers. With steel prices continuing to soften under global pressure, the steel producers are expected to bear the additional costs themselves.
With cheaper imports coming in, the domestic industry is set to witness some price cuts. In fact, some players have already responded to the threat by price revisions.
SAIL has announced a price re-calibration across its product range to the tune of Rs 500-2,000. Essar Steel has also reduced prices by 7-8%.
Ispat is also mulling a price cut and is expected to reduce prices correspondingly.
Global steel mart weakens further
The developments in the past few weeks on the global steel mart have not been unexpected, but are matters of serious concern. This is not because steel and metallics prices have fallen this way. In fact, any serious observer of the steel market would have predicted a correction by now as it was easy to appreciate that the prices were unsustainable around September.
The Chinese demand had started falling by then, at a time when the countrys production was rising at phenomenal rate around 25% year on year a rate that has been maintained till the last reports came in. Elsewhere in the world and including China in certain cases, the steel user industries were getting weaker and as a result the actual steel consumption demand was falling.
The absolute levels of steel consumption in China and elsewhere nevertheless remained fairly decent. However, actual purchases were higher and inventories were getting built up as the fear of further rise in steel prices, particularly of flat products gained strength. However, such a speculative boom was unsustainable as the evidence of weakening of the market spread out. While one was expecting the market to go for some sort of downward correction, the steel prices fell more than was expected.
While there is no doubt that the basic demand and supply conditions in the market have changed significantly to remove conditions of shortages altogether (in fact, to bring in some surplus), the changes were not expected to have caused the current sentiments where the seller is losing hopes and is desperately trying to clear stocks, real or foreseen, by offering huge price cuts. The very fact that the HR coils prices have dropped to lows of $450 per tonne or less on the world market for export, from about $575-600 per tonne in September, last indicates the panic conditions in the market at one level. Most of the responses of this sort have been from the supply side with producers unable to clear stock, and meeting buyers who are cancelling old orders and trying to renegotiate as much as possible.
While the contract prices have not been affected by this turmoil till now, the spot market seems to have lost direction and sense. The current state affairs have also raised one basic question if the party for steel is all over and one is back to the conditions prior to 2002. While this is negativism in the extreme, there is a need to reassess the market. What has really happened? Most attribute everything to China. Today, the country produces more steel than it consumes and has turned a net exporter for semi-finished and long products. It has a some small volume as net imports for flats.
This has affected those living on the Chinese market. One such important steel producing country is Russia. Chinese imports from Russia dropped about 58% in recent months. This has happened at a time when their own economy is weak and taking less steel and Europe has developed huge inventories. Naturally, the Russian offers are plenty and attractive, much to the discomforts of the steel producers elsewhere. China also imported far too much of flat products last year when the actual demand for home consumption was much lower.
Further, with the Chinese manufacturing sector, facing cost increases on other counts and also facing stiff competition on the world market, is finding it tough to absorb a high steel cost. They are turning more careful. They cannot afford to pay so much for flat products if they have to remain in the global business. China is also swallowing up steel active businesses elsewhere. They have turned net exporters of capital goods for example. Their position in other products is well known. Much of what has been seen in terms of growth in China has also been at the cost of industries elsewhere. China instead of driving the global economy up has made it increasingly dependent on it and unless the growth is maintained correspondingly in China, the rest of the world will suffer.
The Chinese economy could have maintained even a higher rate of growth but the fear of a financial bust has forced the government also to intervene strongly to hold down investment growth. But, all this seems to be a temporary period as the country cannot afford to slow down. Therefore, soon they will have to get back to investment, and that will boost steel demand once again. But, the question then will be whether the country will get back to the world market for steel or that it will raise its capacity sufficiently to become self-dependent, leaving very little for the rest of the world.
The steel prices have also pulled down the scrap and other metallics prices. The problem here is that the high iron ore, coal and gas prices will not allow the blast furnace iron or DRI costs to come down correspondingly. Therefore, the low scrap prices may just be there for not very long. In the event of scrap prices remaining low for a sustained period of time, the margins of the scrap based plants will be somewhat protected even at lower steel prices but that wont be the case for the rest.
The steel industry has already responded to the current downturn by cutting production.
If global production comes down to equilibrium level, the prices will revive. Any cut throat competition and fight for survival will only lead to mutual destruction.
Meerut Police to check import of lethal scrap
Large scale import of lethal war scrap into UP is on in full swing from Tughlaqabad ICD, just months after the scrap bomb blast killed nine people on September 30.
The Meerut range police have ordered a fresh crackdown on all war scrap importers in the area. Statements of officials of all steel mills are being recorded. A report has also been registered by the police.
DIG Meerut Police range, R K Vishwakarma, said: "There could be fresh explosions any day if the arrival of war scrap is not checked immediately."
The revelations came after several hundred spent rockets, mortar shells and tank shells were discovered in the Niwari police station area. The projectiles, described as "all spent ones" by the police, were found abandoned near some fields.
