Monthly Archives: February 2016

Coal Clean Cess Increase, Power Generation to End Up Expensive

The Union Budget FY17 announced Increase in Clean Energy Cess by INR 200/MT which will directly rise power generation cost/unit further.

The Budget announcement with rise in Clean Cess on coal to INR 400/MT will hike Power generation cost in the country by 14-15 paise/unit which in turn will be passed directly on consumers as additional tariff by 4 paise/unit.

Government’s proposition to double the clean-energy cess on coal will put addition cost in coal prices also which may rise by 20% after this. While CIL, the state-run behemoth itself anticipating an impact of INR 5,000 crore.

“’Clean Energy Cess’ levied on coal, lignite and peat has now been renamed as ‘Clean Environment Cess’, Finance Minister Arun Jaitley said in budget 2016-17.”

However, rise in cost by 15 paise/unit may reduce the difference between cost of renewable power generation and thermal power generation. It will also generate an additional income of around INR 25,000 crore for the government.

The Budget announcement FY17 was highly focused on strengthening rural India, which will cause surge in demand for power this year.

Jayanta Roy, Head of coal from ICRA predicted that the coal cess will build expense of production for the aluminum sector by 2.5%, and for others such as iron in steel sector it would run between 0.5% to 0.8% ascents in production cost. However, the sponge iron industry, is anticipated to witness ascend of INR 280/MT production costs.

According to India Ratings, the modification on cess on coal will impact profits of such captive Power utilities like JSW, Tata Steel and SAIL etc.

 

 

Indian Billet Market Dull Amid Unchanged Excise Duty

With no major announcement in the union budget FY17 for the steel industry, today MS billet prices opened with marginal corrections of INR 200-300/MT from previous closing. Meanwhile, south market like Chennai fell by INR 400/MT on account of subdued demand.

However, sources today reported that billet buying in Durgapur (West Bengal) is comparatively better than other markets. Manufacturers there are selling the material INR 200-400/MT higher in CST billing than the offers for VAT billing  (local market).

An integrated plant owner in Durgapur mentioned, “We have concluded few bulk deals for billet (100*100 mm) to Bangladesh at USD 322-323/MT (INR 22,200/MT, ex-plant) via road delivery. Besides, traders in Gobindgarh (Punjab) are also willing to purchase billet at INR 22,000/MT ex-plant. But, due to better realization in export, they aren’t interested to sell material within the country.”

While, few small plant operators have reported to sell billet last week to Gobindgarh (Punjab) at INR 22,200-22,500/MT ex-plant; freight via road from Durgapur to Gobindgarh is INR 2,500/MT.

Current MS billet prices with D-o-D

Particular Prices D-o-D W-o-W
Ex-Mandi Gobindgarh 25,900 -300 100
Ex-Durgapur 21,900 -200 250
Ex-Rourkela 21,200 -300 50
Ex-Raipur 22,500 -250 250
Ex-Ahmedabad 24,500 -400 500
Ex-Jalna 24,300   0 0
Ex-Mumbai 24,300 -200 -500
Ex-Chennai 24,450 -450 450
Ex-Hyderabad 24,000   0 0

Prices in INR/MT
Source: SteelMint Research

 
Silico Manganese

Silico Manganese Prices Rise Again This Week

Silico manganese prices rose as slew of fresh deals hit the market showing steel mills had accepted higher offer levels.

SteelMint assessment of silico manganese prices is INR 42,000 (Ex-Raipur), up by 1,000/MT from last week prices. In Durgapur, silico manganese is being offered at INR 43,000/MT. Last week deals were concluded at INR 42,000/MT (Ex-Durgapur). According to sources, Prakash Industries is offering Silico Manganese at INR 41,500/MT (Ex-Champa, Chhattisgarh).

Silico manganese producers reported that there are primary two reasons for price increase. Firstly, demand from steel mills have improved, as steel furnaces which had earlier shut down have reopened again. Secondly, with improvement in demand, the market is facing some shortage in supply for which prices have gained.

A producer from Raipur states, “Steel orders are quite healthy recently, and I heard some mills showed great willingness to restart steel production. Demand from end-users should be good moving forward.”

The silico manganese is receiving stronger support from finished steel market which is helping to spur purchases.

Silico Manganese Export Market Still Slack, Prices Unchanged

Indian origin silico manganese prices in the export market were unmoved amid thin trading activity.

Indian producers reported that European buyers are showing some buying interest but South-East Asian country buyers awaited for further clarity before making any purchases. “There might not be any obvious price movements this week because the export market situation is still unclear,” remarks a producer from Kolkata.

SteelMint assessed that grade 60-14 is being offered at around USD 620/MT FOB East-coast India, and grade 65-16 is being offered at around USD 660/MT FOB East-coast India.

Market sources predicted that the export market was unlikely to see a strong rebound as buyers would still need some time to assess conditions before resuming active trade.

Exchange Rate: USD 1 = INR 68.3

 

Budget 2016-17 Highlights for Steel Sector

Budget for the year 2016-17 is mainly focused on rural and agriculture sector with hardly any major announcement for steel industry.

As MIP on steel imports was recently announced by the government, customs duty on long and flat steel is kept unchanged at 10% and 12.5% respectively.

In order to promote exports from country, government has widened duty drawback scheme under which more products and countries will be included.Under the scheme, the government refunds duties on imported inputs for export items.

Key Highlights

1. Clean energy cess on coal increased from INR 200/MT to INR 400/MT

2. Export duty removed on low grade (below Fe 58%) iron ore lump & fines

3. Export duty on high grade iron ore lump and fines remains unchanged at 30%

4. Export duty removed on Chrome ore

5. Export duty on bauxite reduced from 20% to 15%

6. BCD (basic Custom duty) increased on aluminum products from 7.5% to 10%

7. BCD on zinc alloys increased from 5% to 7.5%

8. BCD reduced on brass scrap from 5% to 2.5%

9. BCD unchanged on steel imports

10. Excise duty remains unchanged

Customs Duty Data on various Steel & Steel-related Products

Item CH No. Custom Duty Custom Duty Duty w.e.f 16 Jun’15 Duty w.e.f 12 Aug’15 Customs Duty  MIP in USD/MT 
    FY 15 FY 16 FY 17
Pig iron 72.01 5.00% 5.00% 5.00% 5.00% 5.00%
Semis 72.07 5.00% 5.00% 7.50% 10.00% 10.00% 341-362
Bars & Rods 72.13 5.00% 5.00% 7.50% 10.00% 10.00% 449-455
Structurals 72.16 5.00% 5.00% 7.50% 10.00% 10.00%
HR Sheets/Plates(Non Alloy) 72.11 7.50% 7.50% 10.00% 12.50% 12.50% 500
HR Coils (Non Alloy) 72.08 7.50% 7.50% 10.00% 12.50% 12.50% 445
CR Coils/Sheets (Non Alloy) 72.09 7.50% 7.50% 10.00% 12.50% 12.50% 560
GP/GC Sheets (Non Alloy) 72.10 7.50% 7.50% 10.00% 12.50% 12.50% 643-752
HR/CR Alloy Steel(Flat rolled) other than items
of Headings No. 72253090, 72254019, 722550 and 72259900
5.00% 5.00% 7.50% 10.00% 10.00%
Flat Rolled Alloy products of Alloy products of heading
72253090,72254019, 7225550 and 72259900
7.50% 7.50% 7.50% 7.50% 7.50% 445-752
Tinplates W/W and TFS seconds  72.10, 72.12 10.00% 10.00% 10.00% 12.50% 12.50%
Defectives CR/coils 72.09 10.00% 10.00% 10.00% 12.50% 12.50% 560
Stainless steel HR coils for coin blanks 72.19 7.50% 7.50% 7.50% 7.50% 7.50%
Melting scrap (iron, steel & stainless steel) 72.04 2.50% 2.50% 2.50% 2.50% 2.50%
Re-rollable scrap 72.07 2.50% 2.50% 7.50% 10.00% 10.00%
Iron ore 26.01 2.50% 2.50% 2.50% 2.50% 2.50%
Iron Pellets 2.50% 2.50% 2.50% 2.50% 2.50%
Coking coal of ash content below 12% 27.01 2.50% 2.50% 2.50% 2.50% 2.50%
Coking coal of ash content below 12% 2.50% 2.50% 2.50% 2.50% 2.50%
Steam Coal 27.01 2.50% 2.50% 2.50% 2.50% 2.50%
Metcoke 27.04 2.50% 5.00% 5.00% 5.00% 5.00%

MIP w.e.f 5 Feb’16 till 4 Aug’16
Source: SteelMint Research

 

Anthracite Coal Offers Undergo Slight Increment on Supply Tightness

Supply shortage in international market has pushed Anthracite coal offers slightly up.

However, it seems to be a matter of least concern for Indian buyers, given the sluggish demand prevailing in the country.

According to a reputed importer in the country, Anthracite coal offers have slightly gone up by USD 1-2/MT due to tight availability in international market. The latest offers are thus assessed at USD 91-93/MT, CFR India.

End-users preferring cheaper alternate fuels, which has eroded demand for Anthracite coal. With alternate fuels like Petcoke, and other forms of coal, being available abundantly and at competitive prices, both in domestic as well as international markets, demand for Anthracite coal is unlikely to revive soon.

During Feb’16, only two import consignments, with a cumulative quantity of 69,500 MT, have landed at Indian ports, according to SteelMint Research. The importers were Essar and JSW Steel.

 

Indian Government Withdraws Export Duty on Chrome Ore

In the Union Budget 2016-17 it has been announced that Export Duty on chrome ore and concentrates will be abolished.

Looking at the demand-supply situation of chrome ore in India, the Union Government has re-examined its export policy and has decided to remove duty on chrome ore, which stood at 30%.

Chrome ore is used to make stainless steel, after it is upgraded to ferro chrome. Earlier, the government had taken steps to preserve chrome ore for domestic use, raising the export duty on chrome ore to 30% in 2012. This had significant impact on the volume of chrome ore exports. However, India cannot consume all the chrome ore mined in the country for ferro chrome making, as a huge amount of electricity is needed for the conversion, which is very expensive. Taking cognizance of the same the Government has decided to ease export of the material.

Nearly all of India’s chrome ore is produced in Odisha, with Odisha Mining Corporation having control over a third of the output. A few companies such as Tata Steel, Indian Metal and Ferro Alloys, FACOR and Balasore Alloys have captive mines in the state.

Because of weak demand, the export price of the mineral has also been falling. China is biggest buyer of Chrome ore in the world, and also the largest stainless steel and steel producer in the world.

The last Indian chrome ore export tender was awarded at USD 210/MT FOB India, in November’15.

 
Budget 2017

Union Budget FY17: Unchanged Coal Import Duty

The Union Budget announced Import Duty on Coal will remain same. Clean Energy Cess increased by INR 200/MT in FY17. 

The annual budget for coal came as anticipated before by numerous, as introduced custom duty remain same on all types of imported coal. Import duty continuous to be same at 5% on imported Met coke. The duty on anthracite, bituminous and steam coal will be unchanged to 2.5% from previous levels of 2.5% in FY16.

Earlier in Budget FY16 the Ministry proposed to rationalize the duty structure on all non-agglomerated coal at 2.5% basic customs duty and 2% CVD, which will be continue in FY17 also.

Grade Basic Custom Duty CVD
  FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
Coking Coal Nil 2.5% 2.5% 2.5% 6% 2% 2% 2%
Steam Coal 2% 2.5% 2.5% 2.5% 2% 2% 2% 2%
Bituminous Coal 2% 2.5% 2.5% 2.5% 2% 2% 2% 2%
Met Coke Nil 2.5% 5.0% 5.0% 2% 2% 2% 2%

 

Although in this fiscal, Union finance minister Arun Jaitley announcement Green Energy Cess levied on coal to double to INR 400/MT from INR 200/MT in last fiscal.

“I propose to rename the Clean Energy Cess levied on coal, lignite and peat as Clean Environment Cess and simultaneously increase its rate from INR 200/MT to INR 400/MT,” Finance Minister Arun Jaitley said in his Budget speech for 2016-17 in the Lok Sabha.

However, also Basic custom duty on all given products proposes to rationalize in FY17 budget.

BCD Rationalized on Existing  Proposed
1. Coal; briquettes, ovoids and similar solid fuels manufactured from coal 2.5% / 10% 2.5%
2. Lignite, whether or not
agglomerated, excluding jet
10% 2.5%
3. Peat (including peat litter),
whether or not agglomerated
10% 2.5%
4. Coke and semi-coke of coal, of lignite or of peat, whether or not agglomerated; retort carbon 5%/10% 5%
8. Pitch and pitch coke, obtained
from coal tar or from other mineral tars
5%/10% 5%
 

Indian Govt. Removes Export Duty on Low Grade Iron Ore

Honorable Finance Minister Mr. Arun Jaitley presented the Union Budget today (29 Feb’16) in the Parliament. In a welcome move to support low grade iron ore exports from India, Indian govt. has completely removed the export duty on low grade iron ore.

Export duty on low grade iron ore fines (less than Fe 58%) export duty was at 10% which has now been removed to nil. Also the export duty on lump of low grade (less than Fe 58%) was 30% earlier which has now been scrapped to nil. 

However, export duty on high grade ore (Fe 58% & above) remains unchanged at 30%.

Prior to this, to boost exports and revive Goa mining industry, the govt. reduced export duty on low grade ore from 30% to 10% w.e.f. June’15.

Goan iron ore miners were suffering hard from decline in global iron ore prices, high export duty and other taxes. Owing to this they had earlier requested the Indian govt. for removal of export duty on low grade iron ore.

Since Feb’15, monthly average iron ore fines (Fe 62%) prices have fallen sharply by USD 16/MT, CFR China in Feb’16. Goan iron ore exports also fell drastically and stood at 0.61 MnT in last fiscal.

In current scenario, ex mines realisation of Goan fines (Fe 57%) will be approx INR 1,134/MT. And ex-mines realization of fines (Fe 57%) from Odisha is around INR 400-500/MT. Prices of Indian fines (Fe 57%) is at USD 38/MT, CFR China.

Cost Analysis of iron ore export from Goa

Particular

Prices
In INR

In USD

FoB India (Fe 57%) fines 2,055 30
Goa Iron ore Permanant Fund@ 10% 205 3
Moisture@4% 82 1.2
Royalty @ 15% 103 1.5
DMF @ 30% of Royalty 31 0.5
Road Freight 250 3.7
Local Handling 250 3.7
Ex-mines realisation 1,134 16.6

FoB price as per index as on 29 Feb’16
1 USD=68.5 INR
Source: SteelMint Research

 
China iron opre imports by countries in Jan'16

China Iron Ore Imports Fall in Jan’16

As we have reported earlier, China iron ore imports fall by 14% M-o-M in Jan’16. The world largest consumer of iron ore, has imported 82.1 MnT iron ore in Jan’16 against monthly highest at 96.2 MnT in Dec’15. China imports more than two third of seaborne iron ore.

The country imports majority of iron ore from Australia, Brazil and South Africa. Among total imports in Jan’16, Australia contributed 61%, Brazil 23% and South Africa contributed 4.3%.

Australia exported less quantity of iron ore in Jan’16 (50.1 MnT) compared to Dec’15 (i.e. 58 MnT) as the major exporting Port namely Port Hedland was surrounded by Cyclone Stan and operation were halted, resulting less supply of iron ore to China.

On the other hand, Brazil’s Samarco mine, jointly owned by BHP and Vale, has been shut down since Nov’15 as the dam bursted there.Due to some environmental disaster, supplies from Samarco region halted, leading to short supply of iron ore to China from Brazil.

On slower Chinese economic growth as well as increased supply from major miners including BHP Billiton, Rio Tinto and Vale, global iron ore prices collapsed since two years. Steel mills in China, typically curb production before Lunar New year holidays.

However, post Chinese holidays global iron ore prices revive somewhat to a level of USD 50/MT, CFR China as local miners didn’t resumed production, short supply of iron ore from Brazil and Australia followed by restocking of raw material by mills as this is high time for constructional activity. But, now prices are again on declining phase and reached to a level of USD 48/MT.

China iron opre imports by countries in Jan'16

 

Union Budget FY17: Investment in Infrastructure Sector

The FM says that the government will open up the road sector, allowing entrepreneurs to take up more transport initiatives. But, details of the scheme are not yet clear.

Indian Finance Minister, Arun Jaitley today in its union budget FY17 has announced to increase in plan infrastructure.  He said that there are 70 projects in road sector that were languishing at the beginning of the year, due to legacy factors. Aggregate length of these projects was about 8,300 km involving over 1 lakh crore investment. With exemplary and proactive interventions, nearly 85% of these projects have been put back on track in FY17.

The total outlay for roads will be estimated at INR 97,000 crore. Along with railways, the total spend in FY17 will be INR 218,000 crore. The total infrastructure outlay stands more than of INR 221,000 crore.

“Pace of completion of roads will rise to 10,000 kms in FY17. 10,000 NH kms to be awarded in FY17 and 50,000 kms state highways will be upgraded,” said Mr. Jaitley.

Major highlights

1. The government has allocated total INR 97,000 crore for roads and highways projects. In this, INR 55,000 crore will be for roads & highways projects, which will be further topped up by additional 15,000 crore to be raised by NHAI through bonds.
2. INR 218,000 crore investment in roads and railways in FY17.
3. Additional 50,000 kms of state highways will be taken up for up gradation as national highway.
4. Government will enact necessary amendments in the Motor Vehicles Act and open up the road transport sector in the passenger segment. An enabling eco-system will be provided for the states, which will have the choice of adopting the new legal framework.

5. Series of measures to modernize ports.
6. INR 800 crore for inland waterways.
7. Action plan for revival of unserved and underserved airports.
8. Will partner with state govt to develop some of airports to enhance regional connectivity.
9. To augment infrastructure spending further, government will permit mobilization of additional finances to the extent of INR 31,300 crore by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority through raising of Bonds during FY17.

The government also announced three new initiatives to reinvigorate private infrastructure sector.

(i) A Public Utility (Resolution of Disputes) Bill will be introduced during FY17 to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts.

(ii) Guidelines for renegotiation of PPP Concession Agreements will be issued, keeping in view the long term nature of such contracts and potential uncertainties of the real economy, without compromising transparency.

(iii) A new credit rating system for infrastructure projects, which gives emphasis to various in-built credit enhancement structures will be developed, instead of relying upon a standard perception of risk which often result in mispriced loans.

Few other budget highlights

1. Allocated INR 19,000 crore for Rural Sadak Yojana in FY17.
2. INR 86,500 crore for irrigation projects in 5 years.
3. 89 irrigation projects to be treated fast.
4. Allocated INR 38,500 crore for MGNREGA project, the erstwhile UPA government’s flagship scheme.
5. Allocated INR 9,000 crore for Rural Development.