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July 17,  2001 Steel Sector Update - July 2001 Production slowing down… Production of finished steel grew by 2.4% in May 2001 as compared to the corresponding period last year after two consecutive months of decline in March and April. However, finished steel production in May 2001 declined by 0.3% as compared to April 2001. Production growth was dull at less than 1% during April-May 2001 as against a 13.5% growth in the same period in the previous year. Chart 1: Finished steel production (in ‘000 tonnes) Source: JPC The production of bars and rods increased by 11% in May 2001 as compared to the same period last year. The production of HR coils declined by 4% while that of CR coils increased by 5%. HR sheets recorded a decrease in production by 8% and that of GP/GC sheets increased by 7.2% Production of bars and rods decreased by 9% MoM while that of HR coils declined by 7% MoM (between April 2001 and May 2001). We believe that given the slowdown in the Indian economy and poor performance of core sectors like automobiles, the steel consumption may come under pressure in the coming months. If inventories build up, cutback in production levels would be desirable. However, in the past the industry has found it difficult to come to an understanding on production cuts. Table 1: Production Production (in 000 tons) May-01 May-00 % Change Apr-May 2001 Apr-May 2000 % Change Bars & Rods 808 729 10.9 1546 1528 1.2 HR Coils 675 701 (3.7) 1387 1435 (3.3) HR Sheets 36 39 (7.7) 71 72 (1.8) CR Sheets/ Coils 355 338 4.9 694 686 1.1 GP/GC Sheets 142 133 7.2 281 268 4.9 Finished Steel 2,436 2,379 2.4 4879 4832 1.0 Source: JPC Prices likely to be under pressure… As per recent reports, steel shipments to almost every industry segment is decreasing-Automotive (-21.3%), Electrical equipment (-19.8%), Industrial machinery and tools (-16.5%) and Shipping, packaging & containers (-12.6%). The global market is likely to see a decline in flat steel prices. The international export prices of hot rolled coils have slipped to $190 per tonne. The consumption of cold rolled and galvanised steel flat products is also expected to witness a downturn. This is likely to impact the demand for hot rolled coils. At a time when the flat steel segment is witnessing a severe downturn with prices falling and a sharp fall in demand also, the long steel products are facing a sharp rise in demand. The prices of rebars, rounds, structurals and channels have firmed up by Rs 1000/tonne as compared to the Mar 2001 levels. While the prices of channels have risen to Rs 14900/tonne compared to Rs 14000/tonne, that of wire rods is now up to Rs 16700 from Rs 15900 and Rounds are costlier at Rs 14450 from Rs 13500. The rise is mainly due to the sustained demand from the infrastructure sector. Anti- Dumping Duties Imposed In June, the US accused several nations including India and countries in the European Union of unfair trade practices, which have harmed the domestic industry. The International Trade Commission would conduct an investigation and if the allegations are proven, then the US can impose tariffs or quotas on imports without breaching its WTO obligations. It was also reported that Canada found India guilty of dumping corrosion-resistant steel sheets into the Canadian market. As a result, the Canadian Government decided to impose duties on these goods. A delegation comprising members from the private sector and the Ministry of Commerce and Industry is expected to visit the US and Canada to discuss the issue of anti-dumping and countervailing duties. The Commerce Ministry recommended anti-dumping duties on imports of alloy and non-alloy steel billets, bars and rounds and ferro silicon from China and Russia. The designated authority has proposed that the amount of anti-dumping should equal the margin of dumping or less, but when levied, should remove the disadvantages faced by the domestic industry. Draft Steel Policy to improve foreign investment The draft national steel policy would remove all the barriers facing foreign companies who intend to acquire Indian steel companies. The important features of the policy are Allow global majors to acquire Indian steel companies A Small Steel Industry Reconstruction Fund would be created to provide loans to the industry for modernization, restructuring and consolidation Intensify the Steel Exporters Forum to supervise cases of dumping Reassess the existing import duty reimbursement schemes Tisco likely to declare poor Q1FY02 results Tata Steel has recorded a 4.6% decline in sale of steel during the first quarter ended June 30 2001, the first quarter of the current fiscal as compares to it sales in the corresponding period last year. The company sold around 0.71 million tonnes in this quarter as compared to 0.74 million tonnes in the same quarter last year. However, the company recorded a 3.3% rise in production of saleable steel to 0.84 million tonnes as against 0.81 million tonnes in the same period last year. Will the global steel mart lose pace ? According to the latest estimates of the International iron and Steel Institute(IISI) , global steel trade reached 281.6 million tonnes in 1999. The figure includes all the intra-regional trade, like those within the European Union (EU) or North American Free Trade Agreement (NAFTA) countries. If the intra-regional trade is excluded, the real blue water trade in steel gets reduced to 163.4 million tonnes. Whatever the emerging trends are, at prevailing prices, the chances of global steel trade to increase are thin. But, even if there is a turnaround in the mart, other factors, including the emerging structural changes in it, will hold down the prospects of trade. Read the recent report by Dr A.S.Firoz Major news Indian news Tisco is looking at acquisition opportunities in selected steel and allied business fields. It had recently ball bearings units of Anti-friction Bearing Corporation. Tata Steel has plans to raise a further Rs 5bn to meet its capital expenditure and replace high-interest bearing debt. It also proposes to raise an additional Rs 10bn in the coming years to meet its capital expenditure requirement and to replace high interest-bearing debts. Tata Steel has decided to open a new captive coking coal mine South-Eastern Block (SEB) at its West Bokaro Collieries (WBC) in view of the depleting reserves at its two existing mines, one at WBC and the other at Jahria, all in Jharkhand. Tata Power Ltd and Tata Iron & Steel Company Ltd (Tisco) plan to set up a joint venture for coal mining. Tata Korf Engineering Services Ltd, a subsidiary of Tata Steel, has cancelled its contract with PT Perkasa Indosteel, Indonesia to set two mini sinter plants, two mini blast furnaces and a meltshop that would use Korf’s energy optimising furnace. The project had been on hold for a year due to the recession in Indonesia. The call for an indefinite strike from July 3 by the central trade unions on the issue of wage revision for non- executives has created a piquant situation for Steel Authority of India Ltd (SAIL). The managements of Steel Authority of India Ltd (SAIL) and Tata Steel have reached an understanding with the trade unions for wage revision of its non-executives. This is likely to have a major impact on the salary bill for certain categories of employees. The Ministry of Steel has opposed the proposal of the large scale steel plants especially Tisco and SAIL, submitted to the Government of India to ban the use of secondary steel in the re-rolling mills. The large units had demanded that the products, especially building material made of ship breaking, were of low standard. The small scale rerolling units were supplying low quality steel in the domestic markets, used for construction work that required higher stability. Hit by falling prices, JISCO has temporarily stopped production of hot rolled plates at its Vasind unit in Maharashtra. The plant, however, is continuing to manufacture its other product, galvanised steel. Essar Steel Ltd has ended with a net loss of Rs 3459mn for the year ended March 31, 2001, as against a net loss of Rs 5812mn in the earlier year. The Government is planning to set up anew autonomous body something similar to the Bureau of Internal Recycling at Brussels, to promote recycling for scrap steel, particularly those generated from ship breaking. Jindal Vijayanagar Steel is trying to reschedule its repayment obligations to foreign lenders by extending the deadline, beginning in July. JVSL’s foreign lender include the US Exim Bank and RZB an Austrian bank. Malavika Steels Ltd and Bellary Steels & Alloys Ltd are likely to become financial institution- managed outfits and the process should begin in a matter of days. Essar has decided against making any fresh investments in the power sector and put on hold its proposed 250 mw captive power plant of Essar Steel. Jindal Strips Ltd, the largest producer of stainless steel in India, suffered an erosion in its operating profit during the 2000-01 fiscal year from Rs2.31bn to Rs2.22bn and in its net profit from Rs630m to Rs532m. Turnover, however, increased slightly to Rs12.99bn from Rs12.08bn. Jindal Strips has completed the second phase of its stainless cold rolling project at its Hissar plant in Haryana state and begun commercial production. International news Kobe Steel Ltd. is looking at reduction of crude steel output in the July-September quarter in light of the need to adjust sheet inventories. The steel maker expects to produce about 1.7 million tons of crude steel in the April-June quarter. Indiana-based NKK Corporation's subsidiary National Steel, the fourth largest integrated steel sheet mill in the United States, expects to see its performance improve as a result of cost-cutting efforts amounting to $100-$200 million and production pick-up. In a move to overcome dumping restrictions in the USA, Brazil’s Cia Siderúrgica Nacional (CSN) has agreed to acquire the assets of Terre Haute, of Indiana-based Heartland Steel, for around $50m. Prices for HR are recovering most strongly in Southern Europe, as stocks of HR products fall across Europe, according to Usinor. However, high stocks of CR and finished goods continue to undermine those markets. Korea’s Posco has decided to bring forward its ambitious plan to become the world’s second largest producer of HR stainless steel, after Germany’s Krupp Thyssen Nirosta. The company will start work to add 450,000 tpy to its HR capacity and lift its crude stainless steel capacity from 1.13m tpy at present to 1.66m tpy, which will give it a world share of 8.5%. French steelmaker Usinor is still interested in Romania’s Sidex SA Galati, although it decided against participating in the recent tender for the privatisation of the company. Sumitomo Metal Industries Ltd. will increase its stake in the leading electric furnace small bar producer Kyoei Steel. By acquiring shares held by Kyoei Steel's chairman Mr. Takashima and other Kyoei group companies, Sumitomo Metal will raise its equity to 35.2% from 30.2%. Kobe Steel Ltd. has told wholesalers and trading houses in the latter part of the week of June 25 that it wants to raise HR coil prices for July spot contracts by 3,000 per ton. Kawasaki Steel has announced that it too will be raising its ‘miseuri’ or domestic spot price for HR by ¥3,000 per tonne for July shipment. POSCO has launched a new management system through process innovation dubbed "POSPIA". POSPIA is a management innovation based on a new "customer-oriented" approach, rather than on the conventional "producer-oriented" stance covering employee attitude, evaluation standard, business process, information system and organization.   Sangeetha Subramanian

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