Two iron ore mines will start production in March: JSW Steel
JSW Steel is poised for better times with steel prices going up and sourcing iron ore from captive mines becoming a reality though weak demand posing a major challenge. Demonetisation, which has come as bolt from the blue, is both a positive and negative for the industry. Seshagiri Rao, Joint Managing Director, JSW Steel spoke to BusinessLine on the company strategy to combat the challenges. Excerpts:
What is the impact of demonetisation of steel industry?
Demonetisation will have a positive impact on both the economy and the steel industry. But there are issues in the short-term. There is lack of liquidity in the market; the market is expecting circulation of new notes to ease pressure. However, there are limits on withdrawals from banks.
The goods and services available in the parallel economy will now flow into the mainstream and pull down prices. On the positive side, this will give the RBI an opportunity to cut lending rates.
What is the logic behind stock split at this juncture?
It is a decision taken to address retail investors' concerns, who have said the share price has gone too high, thus making it difficult for them to invest.
For instance, if one share sold at ₹1,700 is split into 10 shares with face value of ₹1, then its value will become ₹170 and it will attract more retail shareholders. Liquidity will also increase.
Today, we have 24.1 crore shares in the market. With promoters holding 41.5 per cent, the free float is 58.5 per cent, including the 15 per cent held by Japanese steel maker JFE.
If we take out the JFE's holding as it is not available for trading, the free float is about 10 crore shares. The stock split will increase the free float shares to 100 crore. It will also increase FII participation.
Will promoters increase their stake after stock split?
Promoters have been increasing their stake in the company. Promoters' holding came down to 34.5 per cent after the merger of JSW Ispat with the JSW Steel and dilution to JFE. It has already increased to 41.5 per cent. They may increase their holding, but as of now I have no idea.
What are your plans on mining in India?
We have bought five category 'C' iron ore mines in Karnataka. We will invest ₹150 crore this fiscal and another ₹100 crore in next fiscal. Of these five mines, two will be operational by March and rest by December next year.
We have also won Moitra coal mine in Jharkhand in the auction. It is supposed to be operational by 2019 as per the mining plan, but we intend to start production by 2018.
Since it is not an operating mine we have to take approvals, get forest clearances and acquire land.
How do you see the impact of coking coal price in India?
Steel companies margins are under pressure, with the unprecedented trebling of coking coal prices. The demand at present is weak.
In the first seven months of this financial year, India produced 5.5 million tonnes (mt) more of steel. So if you see GDP numbers, steel performed extremely well to register a 10 per cent growth.
Now, the question is who consumed the excess supply when demand was not robust. If you analyse the numbers, we replenished imports to an extent as it came down by 2.9 mt.
We exported 1 mt more as compared to last year. So, domestic demand actually went up by only 1.6 mt. In India, the annualised production is about 95 mt and the installed capacity is 125 mt.
Is MIP helping the industry?
Steel imports have come down by 40 per cent, but the expectations were that it would fall by 50 per cent. Still, imports are at 6 lakh tonnes per month. It is surprising that 32 per cent of the total imports are happening below MIP. Unfortunately, we do not get data on what category imports are being done to ascertain how it was shipped in below MIP. Of course, exporters can bypass MIP, but there is no data available on this right now.
Is time to review MIP on steel as engineering exports are falling?
It is always easy to blame MIP on steel for falling exports. It has to be looked at in a broader sense. The global trade has come down significantly because demand has fallen. Even maintaining $22 billion in exports every month is a great achievement.
If someone wants to evaluate exports from India, it should looked in volume rather than in value terms.
I do not think quantity-wise exports from India would have come down significantly. The same is true with steel. Earlier, steel was exported at $700 a tonne; today I'm shipping it at $400. I have to export 1.7 tonnes more to get the same value.
Singareni to supply coal to Mahagenco
Mahagenco has entered into a memorandum of understanding with Singareni Collieries Company Limited for supply of 10 lakh tonnes (one million tonnes) of coal for their new thermal power projects.
The agreement was signed in the presence of N Srinivas, Executive Director (Coal Movement) by representatives of both the organisations at Singareni Bhavan. This comes a day after Singareni entered into a similar arrangement with Tangedco.
The State-owned Mahagenco has been a customer of Singareni and had earlier entered into an MoU for supply of 2.26 MT of coal for Parli thermal power plant.
New power projects
Keeping in view the consistency in coal supply from Singareni, Mahagenco has inked an agreement for supply of 10 lakh tonnes of coal to meet the requirements of their new power projects at Parli 250 MW plant and Korade 8,9,10 units (each 660 MW capacity) on a bridge linkage policy.
The Maharashtra power company has linkages with Coal India companies — Western Coalfields (Maharashtra), South Eastern Coalfields (Chhattisgarh) and drawing coal for their power plants.
Bridge linkage
Now, Singareni Collieries has been approached for 1 million tonnes coal during the current financial year as bridge linkage to new power projects.
During the meeting, they also discussed with Singareni for supply of one million tonnes more coal during this financial year for Chandrapur, Kaparkhada and Nasik power plants too.
http://www.thehindubusinessline.com/news/singareni-to-supply-coal-to-mahagenco/article9382642.ece
Finland set to become first country to ban coal use for energy
Finland could become the first country to ditch coal for good. As part of a new energy and climate strategy due to be announced tomorrow, the government is considering banning the burning of coal for energy by 2030.
"Basically, coal would disappear from the Finnish market," says Peter Lund, a researcher at Aalto University, and chair of the energy programme at the European Academies' Science Advisory Council.
The groundwork for the ban already seems to be in place. Coal use has been steadily declining in Finland since 2011, and the nation heavily invested in renewable energy in 2012, leading to a near doubling of wind power capacity the following year. It also poured a further €80 million into renewable power this past February.
On top of this, Nordic energy prices, with the exception of coal, have been dropping since 2010. As a result of such changes, coal-fired power plants are being mothballed and shut all over Finland, leaving coal providing only 8 per cent of the nation's energy.
Radical step
Regardless of the favourable circumstances, it would still be radical if Finland became the first country to bring in a law banning coal. That puts it ahead of other nations that have been looking for ways to end their relationship with the fuel.
Several – including the UK, Austria and the Netherlands – have announced plans to phase coal out within 10 or 15 years. France's prime minister announced last week that the country will shut all its coal plants by 2023.
However, this approach has "more degrees of freedom" than a ban, says Lund.
Canada, for example, announced on Monday that it would phase out traditional coal by 2030. But its roadmap permits provinces to carry on using coal beyond this date provided they reduce emissions with carbon capture and storage.
Another pioneer
In March, the US state of Oregon threw its weight behind a tougher measure, writing into state law a measure that bans coal outright. By 2035, according to this law, no utility may produce coal-generated electricity or import it from another state.
Although Finland is expected to make an official announcement of intent tomorrow, the move wouldn't be set in stone just yet. The energy and climate strategy is due to be presented to the Finnish parliament for approval in March.
But the actions of nations such as Finland, France and Canada show growing global momentum away from coal.
"These moves are important forerunners to enforce the recent positive signals in coal use," says Lund, citing the stagnation of coal use in China and its plan to reduce the fuel's share in the energy mix. "The more countries join the coal phase-out club, the better for the climate as this would force the others to follow."
Coal, LNG prices heat up as snow hits Tokyo, Beijing
An early winter sharp cold snap in northeast Asia and the first November snow fall in Tokyo in 54 years this week has boosted prices for thermal coal and liquefied natural gas (LNG) as power stations fire up to meet a surge in electricity demand.
The cold snap is linked to the La Nina weather event in the Southern Hemisphere that can lead to sustained and disruptive variations in normal seasonal weather patterns. The snow in Tokyo for example was enough to delay rail services.
At the same time, China aviation authorities cancelled more than 80 flights in the capital Beijing on Monday, while road traffic slowed to a crawl after the earliest such cold spell in three decades. Temperatures dropped to -9 degree Celsius (15.8 Fahrenheit) earlier this week after an alert issued Sunday warned of heavy snowfall and blizzard conditions in northern China.
Meanwhile, the South Korean weather agency has also warned of imminent snow as temperatures fall to -4 degrees Celsius.
To beat the cold, China has temporarily eased restrictions on coal production until the end of the year as Premier Li Keqiang said there was a need to balance demand to ramp up power output against pollution control.
Spot thermal coal prices from the Australian port of Newcastle have already doubled year-to-date to top over $100 a metric ton, underscoring its position as one of the best performing raw materials this year amid a broad and extended slump in the commodities complex.
The jump in prices prior to the current cold spell came after Chinese government ordered a cut in domestic output to mop up excess capacity and stem air pollution and as investors bet La Nina-related wet weather would cause production glitches in key regional exporters Australia and Indonesia.
http://www.cnbc.com/2016/11/24/coal-lng-prices-heat-up-as-snow-hits-tokyo-beijing.html
Rio Tinto to cut iron ore volumes
Rio Tinto Group said it's prepared to cut iron ore output if that'll improve cashflow, signaling a major step back from the industry's decade-long strategy to keep pumping ever-expanding supply onto the global market.
The world's second-biggest iron ore exporter is driven by margins and not by market share, Chief Executive Officer Jean-Sebastien Jacques told investors during a seminar in Sydney. The company wants to make sure "we maximise free cash flow coming" from its Pilbara iron ore system and "if it means reducing the volume we will do it," he said.
While Vale SA, the world's biggest producer, is continuing to expand supply, the Rio de Janeiro-based company this month said it will reduce higher-cost iron ore production to protect margins amid a global glut. The largest exporters in Australia are raising supply at the slowest pace in years after resisting pressure to limit increases in output through the collapse in prices that spanned 2013 to 2015.
Rio's comments "represent a shift in the major miners' attitude toward expansion, especially as supply growth has already been moderating," Dang Man, an analyst at Maike Futures Co. in Xi'an, said by phone. "If demand remains stable through next year, supply may call the shots on prices. Any output reductions in a relatively balanced market will be a boost for iron ore."
Here's the Goldman Sachs note that's got iron ore traders excited
Even by their usual standards, the moves in iron ore markets in recent days have been wild.
Slammed last week, prices ripped higher on Tuesday, seemingly out of nowhere.
It's gone from a rout to a rally in less than 48 hours.
While there's any number of reasons being cited to explain the sudden and dramatic turnaround, one factor that's been cited is a research note from Goldman Sachs in which the bank upgraded their view for prices in the year ahead.
Given the level of interest, it's an opportune time to see exactly what it said.
Here's a few key snippets from the research note from Hui Shan, Amber Cai, Christian Lelong and Jeffrey Curry, analysts at Goldman Sachs.
On fundamental factors that drove the rally this year
Demand surprised to the upside on the back of the China credit stimulus earlier this year. Our China economics team estimates that, in H1 2016, a total of RMB 14 trillion was injected into the economy, equivalent to 35% of GDP. During the first 10 months of 2016, property sales in China increased 27% yoy, auto sales climbed 14%, and excavator sales jumped 17%.
In addition to higher steel demand, inventory restocking also boosted demand for iron ore. China port inventory increased 20Mt in 2016, reversing the destocking trend in 2015 and resulting in a tighter seaborne market.
Lower than expected iron ore production is another tailwind to iron ore in 2016.
Iron ore's relationship to coking coal prices
Metallurgical coal prices in China rallied strongly in 2016 as a result of supply-side reforms aimed at cutting excess capacity in the coal industry. Because metallurgical coal is a key ingredient in making steel in China, steel mills had to raise steel prices as production costs rose. In particular, high-grade iron ore, which needs less metallurgical coal in steel production than low-grade iron ore, enjoyed a large premium when met coal became more expensive. Although one would typically expect a limited or even negative impact of higher metallurgical coal prices on iron ore demand, the market appears to be chasing the rally with iron ore prices tracking closely to rising steel prices.
And the more speculative elements behind the move in prices
With ample onshore money supply, low returns on bank deposits, and relatively tight capital controls, Chinese investors seem to be searching for higher yields, from the stock market in 2015 to the property market in 2016. In recent months, the renewed CNY depreciation against the US dollar and the government's effort in curbing price appreciation in the real estate market may have led to speculation in the commodities market.
The outlook for prices in 2017
We envision a three-step price path in 2017.
In the first step, we expect a near-term correction, which is already underway since iron ore prices reached almost US$80/t post-election, to continue until prices reach US$65/t. During 2017H1, we see supply and demand roughly in balance and expect prices to stay above US$60/t. During 2017H2, however, we expect the supply pressure to begin to build and iron ore prices to fall to US$55/t by year-end.
We revise up our long-term equilibrium price to US$45/t (previously US$35/t).
And the risks to its forecasts
On the macro front, political uncertainties loom large both in the US and in China. While the market priced a large demand boost from infrastructure spending by the Trump administration following the election outcome, it is unclear to what extent protectionist policies may also be pursued which could negatively affect global growth and the demand for capex commodities.
Regarding China, policymakers have been trying to strike a delicate balance between near-term growth and long-term structural reforms. While nearterm growth appears to be winning the upper hand in 2017, the balance may shift in 2018 after the leadership transition.
On the micro front, iron ore port inventory has already risen to above historical average levels and it remains to be seen how much inventory can continue to increase without negatively affecting spot prices.
Additionally, the onshore iron ore futures market has proved to be an easy target for speculation and bullish sentiment due to its backwarded forward curve.
While Goldman has clearly become more optimistic on the outlook for prices, it's worthwhile noting that its forecasts are all below the current spot price of $74.50 a tonne.
And all of the risks it has cited are to the downside, not the upside.
Given the wild price moves seen in recent weeks have been driven by futures markets, leaving the benchmark spot price up over 70% for the year, Shan, Cai, Lelong and Curry appear confident about one thing in the year ahead.
"If the pattern continues, we would expect the path of iron ore prices in 2017 to be anything but smooth."
Best of luck to the Australian treasury staff who are formulating the next set of budget forecasts.
Warm Regards
Anurag Singal
Sr Manager –Business Development
Essel Mining & Industries Ltd
14th Floor, Industry House
10,Camac Street –Kol-71
Ph: 033-30518415,9088026252
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