Monthly Archives: December 2011

Spot Iron ore prices remains unchanged; Rumors about export duty hike creates panic

Spot Iron ore prices remain unchanged at $143-146/MT CFR
China on Saturday with very few trades taking place as the holiday mood sets in.
Rumors about a hike in export duty of Iron ore have created a panic among the
market players.

However, there is no confirmation from the Steel ministry
about any such hike immediately though they have such a proposal to hike the
export duty  to 30 per cent from the current 20 per cent, which will be
sent to the finance ministry for its approval and implementation later in the year
2012.

The previous hike in export duty to 20% was not appreciated
by the iron ore industry and exports of iron ore declined by about 22% to 25.2
million tonnes in April-July to the corresponding period last fiscal. Exports
in the Aug-Nov period declined further to reach 14.8 million tonnes. 

Industry bodies such as the Federation of the Indian Mineral Industries(FIMI) expect iron ore exports to
fall further in 2012 if the export duty is hiked to 30%.

 

Trends and Developments in the Steel Sector

Steel sector trends

*  India
became the 4th largest producer of crude steel in the world in
2010 as against the 8th position in 2003 and is expected to
become the 2nd largest producer of crude steel in the world by
2015.

*  India
also maintained its lead position as the world's largest producer of direct
reduced iron (DRI) or sponge iron.

*  222
MoUs have been signed with various states for planned capacity of around 276
million tonnes by 2019-20.

* Major
investment plans are in the states of Orissa, Jharkhand, Karnataka,
Chhattisgarh and West Bengal.

*  The
steel sector contributes to nearly 2% of the GDP and employs over 5 lakh
people.

*  The
per capita steel consumption during the last six years has risen from 38 kg in
2005-06 to 55 kg in 2010-11.

 

Production, consumption and demand of Steel

 

 *  Capacity
for crude steel production expanded from 51.17 million tonnes per annum (mtpa)
in 2005-06 to 78 mtpa in 2010-11.

Crude
steel production grew at 8% annually (CAGR) from 46.46 million tonnes in
2005-06 to 69.57 million tonnes in 2010-11.

*  Production
for sale of finished steel stood at 66.01 million tonnes during 2010-11 as
against 46.57 million tonnes in 2005-06, an average annual (CAGR) growth of 7%.

*  Consumption
of finished steel has grown at a CAGR of 9.6 % during the last six years.

*  Export
of finished steel during 2010-11 stood at 3.36 million tonnes while imports
during 2010-11 stood at 6.54 million tonnes.

*  In
the next five years, demand of steel is likely to grow at a higher annual
average growth of over 11-12% as compared to the average annual growth of 8%
achieved between 1991-92 and 2010-11.

 

 

Major initiatives and achievements

 

*  Steel
Authority of India Ltd. (SAIL) became a Maharatna company and Rashtriya Ispat
Nigam Ltd. (RINL) became a Navratna company during 2010.

 

*  Mega
Expansion Plans of SAIL, RINL & NMDC Ltd.

 

The
Steel PSUs are in the midst of ambitious expansion plans. The major thrust of
the modernization and expansion plans is to adopt the best modern technology,
which in addition to being cost effective should also be energy efficient and
environment friendly.

 

*  NMDC
plans to increase the production of iron ore from the present level of around
24 million tonnes to 40 million tonnes by 2014-15.

* NMDC
is setting up a 3 million tonne per annum (mtpa) capacity Integrated Steel
Plant at Nagarnar, Chhattisgarh with an estimated cost of Rs. 15,525 crore.

*  NMDC
is also setting up a 1.2 million tonne per annum (mtpa) capacity pellet plant
at Donimalai, Karanataka.

 

Merger/acquisitions/revival/restructuring/Joint
ventures of the Steel PSUs

 

*  Maharashtra
Elektrosmelt Ltd (MEL), the 99.12% subsidiary of Steel Authority of India
Limited (SAIL), has been merged with SAIL with effect from 01.04.2010.

 

* 'SAIL
Refractory Company Limited'-a subsidiary company of SAIL for transfer of the
Refractory unit of BSCL incorporated in August, 2011

 

* SAIL-SCL Limited-Joint ventures (JV) with Govt. of Kerala to revive existing
facilities at Steel Complex, Calicut has been effective from
30.12.2010.  SAIL has formally taken over the management of the JV
Company.  Govt. of Kerala has been requested to expedite approval of
rolling mill by JV Board.

 

* JV
with Kobe Steel for ITmk3 Technology envisages installation of a 0.5 MTPA Iron
Nugget plant at ASP, Durgapur. This unit will produce premium grade Iron
Nuggets from iron ore fines and non-coking coal. Proposal for formation of a JV
Company with M/s Kobe Steel (50:50 equity participation) has been put up for
consideration of SAIL Board on 29.11. 2011.

 

*  Hajigak Iron Ore Deposits, Afghanistan

 

SAIL
led Consortium which submitted bid in September’2011 has been alloted mining
blocks B, C & D of the Hajigak Iron ore deposits (reserve of 1770 MT). The
total investment estimated at US $ 10. 8 Billion in phases (includes
development of mine,  installation of 6.12 MTPA Steel plant in two
phases,  800 MW Power plant, Rail & Road infrastructure and CSR
activities).

 

* Special
Purpose Vehicle

 

A
Joint Venture Company(JVC) called “International Coal Ventures Ltd” comprising
of SAIL, RINL, CIL, NTPC and NMDC has been set up for acquisition of coal mines
in overseas territories, with an equity base of Rs.3000 crore to be leveraged
with around Rs. 7000 crore of debt. The ICVL will function like a Navratna
company with powers to clear proposals involving investment of upto Rs.1500
crore. The company has already initiated efforts to acquire coal properties
abroad with specific countries like Australia, Mozambique, Canada, Indonesia
and USA.


Source: Press Information Bureau, Ministry of Steel

 

Iron ore exports down by 28% during Apr-Nov 2011

Iron ore exports dipped by over 28 per cent to reach 40
million tonnes (MT) in April-November this fiscal following ban on shipments of
the key steelmaking raw material from Karnataka and subdued output in Goa. 

Iron ore exports from the country were over 55.5 million tonnes in the year-ago
period, according to the data released by industry association Federation
of Indian Mineral Industries (FIMI) on Friday. 

“The decline in exports of iron ore is due to a number of reasons. The
Karnataka ban comes on the top. Also, several mines in Goa are closed and the Odisha
government has stopped giving export permits,” FIMI Secretary General
R K Sharma told PTI. 

Iron ore shipments from Karnataka, a major exporter of the raw material from
the country, have been stopped since July, last year, following allegations of
widespread corruption. 

Production of iron ore in around 45 mines is closed due to environmental
reasons, Sharma said, adding that in Odisha, an informal ban on exports is in
place.

 

Coal to cost more on new pricing method

The Board of Directors of Coal India Ltd (CIL) on Friday approved a
proposal to adopt the internationally accepted, gross calorific value
(GCV)-based pricing mechanism beginning 2012. The new pricing
notification will be released on Saturday.

Price Rationalisation: �There is some (price) impact as we have brought in uniformity in
pricing (meaning coal of a particular GCV will be sold at the same price
by mining subsidiaries). The rationalisation was done keeping in mind
that the subsidiaries do not face adverse impact on revenue,� Mr Jha
told Business Line. �There may be some impact on prices
(excluding levies and taxes) but we do not foresee any major impact on
user industry,� he added. Asked if he could define an average increase,
Mr Jha said that it could not be done as the products are freshly
categorised.

Source: Business Line

 

Indian ferrous scrap market continues to remain strong

Domestic ferrous scrap prices continued to remain firm across
country. Prices for local ferrous scrap moved up by Rs 100-500/MT this week.
Slightly improved buying over limited supply has made it expensive in major
places in India including Mumbai, Hyderabad, Raipur and Alang.

However, HMS (80:20) Scrap at Mandi Gobindgarh was quoted at
Rs 29,100/MT i.e. down by Rs 100/MT from the previous trade prices.

Recently, a cargo of 4 containers with 26 tones of weight of
HMS (80:20) was sold at 25,200/MT in Mumbai. Traders expect prices to remain
firm in the days to come as the demand for the product has increased this week
from the steel manufacturers.

Ferrous scrap was sold at
Rs 10,000/MT in Chhattisgarh state once upon a time which is now sold at around
Rs 30,000/MT currently (the increased is noticed juts within 2 year), leading
to rise in production cost. Bringing imported scrap to Chhattisgarh is also not
feasible as it is situated away from sea ports and the freight cost would be
high. So, this is also one of the reasons behind the rise in local ferrous
scrap prices.

 

30 mini steel plants closed in Chhattisgarh; 35 more on the verge of closure

Mini
steel plants in Chhattisgarh are facing a threat of closure due to the ongoing financial
& raw material crisis. Most of the plants are running at lower capacities. Plants
are running only for 6 hours instead of 24 hours in a day and lower production
levels have reduced the supply of finished products in the market.

Rolling
mills are unable to get M Guard at sufficient quantities i.e. an important
ingredient to manufacture finished products like TMT, Angle, etc. So, it has made
TMT and other construction material expensive.

35
more mini plants are likely to shut down their operations and most of the plant
owners are tensed over the present production situation.

Key Factors affecting the steel market
are as follows:

Higher Power tariff- The main reason behind this closure of plants is higher power tariffs. Plants
owner have to pay the fixed demand fee of Rs 12 Lacs whether they produce or
not. There is increment of more than 50% in electricity charges every year that
has pushed up the steel prices too.

Expensive Scrap- Ferrous scrap was sold at Rs 10,000/MT once upon a time which is now sold at
around Rs 30,000/MT currently (the increased is noticed juts within 2 year),
leading to rise in production cost. Bringing imported scrap to Chhattisgarh is also not feasible as it is situated away from sea ports and the freight cost would
be high. So, this is also one of the reasons behind the rise in local ferrous scrap
prices.

“30
mini steel plants have been closed and 
trader's money has been blocked. Production has been reduced to less than 50%
in over 100 more plants. So, prices are moving northwards. Govt are charging
full electricity fee even at half production capacity. In this case, plants
owners are facing problems to make the payments. It is likely to hurt the steel
manufacturers and other business until or unless the state Govt provides some
good relief package”, said Mr. Ashok Surana, President, Mini Steel Plant
Association.

 

Indian Railways to charge 10% service tax on railway freight

Government has decided to impose a 10% service tax on
movement of freight through railways w.e.f 31st March 2012.

The tax will impact prices of coal, steel, iron ore and
cement if companies that mine or manufacture these commodities decide to pass
on the burden to consumers.

As per railway ministry's circular, finance ministry has
given abatement of 70% of gross freight charged by railways. So effectively,
the tax rate would be levied at 3%. Imposition of service tax will also attract
education cess of 2% and higher education cess of 1% on the amount of service
tax, raising the total rate to 3.09%.

The government will benefit as its tax kitty will swell with
inclusion of around Rs1,000 crore in the form of service tax on freight.

However, “the move could hit railways revenues a bit
initially as there is likelihood of a minor reduction in movement of these
items by the national transporter,” a senior railway ministry official said.
The four items contributed 70% to railways earnings during April-November 2011.

 

Spot Iron ore inches high on speculative buying

Spot iron ore prices in China moved up slightly on the last
trading day of the year 2011 after a flurry of speculative purchases ahead of
the New Year.

Indian fines Fe 63.5% moved up by $2-3/MT to reach at
$143-146/MT CFR China. Australian Newman fines also moved up to reach $139-141/MT
(CFR China). 

The most active rebar futures on the Shanghai Futures
Exchange opened marginally higher at 4,202 yuan ($666)/MT on Friday as compared
to 4,201 yuan/MT in the previous close.

“There must have been a bit of buying going on before
the new year break, and some must be hoping to profit from a jump in prices in
the new year,” said a trader based in Shanghai.

“My feeling is that prices are back at their natural
level after falling so quickly (in October), so I'm not expecting any major
adjustments in the coming few weeks, but there could be a policy announcement
to stimulate buying,” he added.         

 

Illegal mining continues in Goa despite strict supervision

Goa's mining industry, in the
last six months, has reported almost 10 per cent of its iron ore being exported
under doubtful circumstances despite being under strict surveillance for
illegal mining activities.

Records indicate that between
April-November, 2011, total 24 million tonnes iron ore was exported from both
the ports in Goa-Panaji port and Mormugao Port Trust (MPT).

Of the entire export, only 21 MMT
was registered with the Goa Mineral Ore Exporters Association (GMOEA) and the
rest remains unclassified, GMOEA Secretary, Mr Glenn Kalavampara, said.

Suspicion shrouds 3 MMT of Iron
Ore, which was exported by small-time traders, usually termed as fly-by-night
operators.

Goa witnessed unprecendented
regulatory measures by the State Government after the Mr Justice M B Shah
Commission began its probe into illegal mining activities.

Around 400-odd traders, who were
linkages between exporters and mine owners, were summoned by the State Mines
and Geology Department following which it was found that many of these
operators worked with fake addresses.

The situation was expected to be
improving this financial year after much discussion on the unclassified ore but
it remained the same.

The ore which is not registered
with GMOEA has a question mark on its source, which means that there is a
possibility that it could have been extracted illegally.

 

MSTC auctions 12.72 lakh tonne of Iron ore in recent e-auction

State-owned MSTC, has e-auctioned about half of the
entrusted 250 lakh tonne of iron ore lying at Bellary, Chitradurga and Tumkur
in Karnataka.

In the latest auction, held on December 27, MSTC auctioned 12.72
lakh tonne at an average Rs 1,880/MT, generating total realization of  Rs 239.16 crore.

Having conducted 17 “smooth and transparent” e-auctions to
the satisfaction of the supervising committee, MSTC has now sought mandate to
auction off iron ore mined in other states as well, said S K Tripathi,
chairman-cum managing director, MSTC.

In 17 online auctions so far, MSTC has sold 112.72 lakh
tonne of the Karnataka ore (containing both high and low iron content) for Rs 2,601
crore, generating a per-tonne realisation of Rs 2,307.50. Among the 50-odd
buyers are state-owned miner NMDC, JSW, Monnet Ispat and small-scale steel
producers, said Tripathi.

Some bidders have complained about the high reserve prices
relative to the quality of ore auctioned. However Mr. Tripathi said that such
concerns are “Minor in nature. Well, buyers have been mostly happy with the
outcome.”