Indian steel mills expand on firm prices, demand hopes

Market: Metals
21/09/21

State-controlled Indian steel producer Steel Authority of India (Sail) plans to raise its crude steel capacity to 50mn t/yr by 2030, adding to the list of domestic producers that are looking to expand owing to expectations of firm demand and stronger prices.

Sail has started work on the land bank study for the next phase of expansion, Sail chairman Soma Mondal said in a letter to shareholders earlier this month. The firm recently announced plans to raise hot metal production capacity at its Rourkela steel plant.

Sail produced 15.215mn t of crude steel in the financial year 2020-21 ending 31 March and 16.155mn t in 2019-20. The fall in output in the last financial year was the result of disruption caused by Covid-19. Prior to the pandemic, the firm's output had risen by just over fifth between 2011-12 and 2019-20.

"Strong cash generation due to higher steel prices and balance sheet strength will continue to support the funding requirements of long-term growth plans of steel companies," ratings agency Care Ratings' deputy manager-industry research, Rashmi Rawat, said.

The Argus domestic India hot-rolled coil (HRC) index rose by 91pc from a year earlier to Rs70,500/t ($957/t) in mid-June. The index currently stands at Rs64,000/t, up by 56pc from the previous year.

Steelmakers in India managed to cope with the loss of domestic demand last year because of firm export prices. International steel prices benefited from governments' stimulus measures to support economies following the outbreak of Covid-19 and a slow supply response.

The Argus cfr Asean HRC index registered a 160pc jump on the year to $1,048/t in mid-May.

"Focus on infrastructure and government initiatives such as ‘Make in India' are expected to boost steel demand growth. In addition, the government's focus on accelerating the rural economy and plans for building smart cities, affordable housing and dedicated freight and high-speed rail corridors are expected to create significant demand for steel," Rawat added.

As part of the government's national steel policy, announced in 2017, India aims to reach 300mn t/yr of crude steel production by 2030, more than double from the current capacity of 143.91mn t/yr.

"[300mn t] is a bold target. Financing is a very big challenge, which could be one of the bottlenecks. The larger players by themselves will not take us to 300mn t, the entire gamut of the primary as well as the secondary producers has to bring in investments for us to achieve the target," Icra Ratings assistant vice-president Ritabrata Ghosh said.

Securing contiguous tracts of land to build large steel projects and a sustained period of strong infrastructure growth will be critical, Ghosh said, adding that steel exports will also play a crucial role amid the shift in China's export policy. Indian steel export prices currently stand above domestic levels, whereas domestic prices are usually higher than export prices.

The world's leading steel producer, China, has removed rebates and imposed export taxes on certain steel products this year to discourage exports owing to high domestic demand. The country is also looking to cap steel output in efforts to reduce carbon emissions.

Indian steel mills have benefited from this move, with most companies registering higher sales, which have been supported by increased exports.

Dependency on coking coal imports is also a factor that poses a cost challenge for steel producers. The Argus fob Australia premium low-volatile coking coal index stood at a record-high $392.50/t today, up by 203pc on the year.

By Sumita Layek

Selected Indian firms' steel-making capacity			mn t/yr
Company	Current capacity	Target capacity	Recent expansion projects and plans

JSW Steel	18.0	45.0	-5mn t/yr Dolvi expansion near commissioning, 2.5mn t/yr Vijayanagar expansion under way -8mn t/yr pellet plant commissioned at Vijayanagar in Mar 2021 -2.5mn t/yr Bhushan Power & Steel acquired in Mar 2021 -1.2mn t/yr Plate & Coil Mill Division of Welspun Corp acquired in Apr 2021 -1mn t/yr Asian Colour Coated Ispat acquired in Oct 2020 -0.1mn t/yr Vallabh Tinplate acquired in Mar 2021
Tata Steel	19.6	35.0-40.0	-Kalinganagar expansion to 8mn t/yr under way -500,000 t/yr steel recycling plant commissioned at Rohtak in Aug 2021 -5 t/d carbon capture facility at Jamshedpur commissioned in Sep 2021
Sail	15.2	50.0	-Added 2.7mn t/yr BF in IISCO, rebuild coke over battery #1 & #2, upgraded BF#2 in Bokaro, added 2.8mn t/yr BF and new steel melting shop in Bhilai, installed new BF-5, coke over battery-6 and sinter plant-3 in Rourkela and added 55t steel melting shop-electric arc furnace in Salem -Plans to raise hot metal production capacity at Rourkela to 4.85mn t/yr
JSPL	8.6	15.9*	-To double capacity at Angul to 12mn t/yr, with installation of 4.25mn t/yr BF, 2.7mn t/yr DRI, 6.3mn t/yr steel melt shop; BF commissioning by end of Dec 2023
AM/NS	7.3	30.0†	-Acquired 10mn t/yr Essar Steel in Dec 2019 -Acquired 500MW Bhander Power Plant in Hazira in Mar 2020 -Started operations at 5.5mn t/yr Thakurani iron ore mine in July 2020 -Commissioned second 6mn t/yr pellet plant in Paradeep in Sept 2021 -Begun ops at 7.16mn t/yr Ghoraburhani-Sagasahi iron ore mine at Sundargarh, in Sept 2021
*JSPL's target capacity is by FY25, #AM/NS's target capacity is long term

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