Debt protection metrics of steel players to remain depressed in near term

August 30, 2016, 

Imposition of provisional anti-dumping duty (ADD) on hot-rolled and cold-rolled coils for six months will help domestic flat steel players overcome challenges posed by a weak domestic demand, said ICRA in its report today.

Additionally, the extension of minimum import price (MIP) on a trimmed list of steel products for two months will benefit the industry, especially long steel players which do not attract any ADD as of now, it said.

India's steel imports, which fell by around 29 percent on year-on-year in the April to June quarter of the current financial year largely due to MIP and Safeguard Duty(SGD), are expected to reduce further in the coming months, thus helping domestic mills regain lost market share,"the report quoted Jayanta Roy, senior vice-president and co-head, corporate sector ratings as saying.

Domestic hot-rolled coil (HRC) prices witnessed a drop in July 2016 on account of weak demand and subdued Chinese export prices. However, after the imposition of ADD in August 2016, HRC prices have increased by Rs. 1,500 per tonne, and are expected to remain buoyant in the near term as domestic HRC prices are still cheaper than landed cost of Chinese import offers by about 13 percent. Nevertheless, in ICRA's opinion, given the marginal demand growth of 0.4 percent in Q1 FY2017 and an overcapacity-related concern in the domestic market, steelprices are unlikely to increase significantly from the current levels unless demand growth strengthens. In such a scenario, an expected revival in rural demand following a normal monsoon after two years, and the likely rise in discretionary consumption after the 7th Pay Commission payouts, remain critical for an improvement in domestic steel consumption in the second half of FY2017.

On the raw material front, India's iron ore production has increased by almost 35 percent YoY in Q1 FY2017, on the back of a 23 percent YoY growth registered in FY2016, being led by rising supplies primarily from Odisha and Goa. With domestic crude steel production growing by a modest 0.9 percent and 4.8 percent YoY in FY2016 and Q1 FY2017 respectively, domestic iron ore prices have remained under pressure, correcting by around 13 percent between April and August of 2016. However, spot prices of coking and thermal coal have witnessed a sharp increase of about 39 percent and 20 percent respectively since end May 2016, which is likely to increase the cost of production of blast furnace operators and sponge iron players respectively. Consequently, ICRAestimates that notwithstanding the lower price of iron ore between May and August of 2016, cost of major raw materials is expected to increase by around Rs 1,580 per tonne for blast furnace players, and by around Rs 390 per tonne for sponge iron manufacturers dependent on imported coal.

Domestic steel prices have increased in the second week of August 2016 post the imposition of ADD. However, given the weak domestic demand, the extent of increase has been only around 5 percent from the July 2016 levels, and currently remains lower than the previous peak levels achieved towards the end of May 2016.

"Steel demand in India remains soft during the second quarter because of lower construction activities during monsoon. This, coupled with the higher coal costs, and a limited price rise off late, will keep the operating profit margins of domestic steel companies under pressure in the current quarter", Roy added. Also, debt coverage indicators of the leading four domestic steel players (accounting for around 45% of the current domestic capacity) have deteriorated significantly in the last few years, with the total debt to operating profit and interest coverage ratios falling to 9.6 time and 1.3 time only in FY2016. The situation in case of mid-sized steel players is even more worrying. Given the significantly high debt levels contracted by these companies in the last few years, ICRA expects debt protection metrics of steel players to remain depressed in the near term.

Source :business-standard

Anti-dumping duty to help domestic steel firms overcome weak demand:ICRA

Debt protection metrics of steel players to remain depressed in near term (August 30, 2016)

Imposition of provisional anti-dumping duty (ADD) on hot-rolled and cold-rolled coils for six months will help domestic flat steel players overcome challenges posed by a weak domestic demand, said ICRA in its report today.

Additionally, the extension of minimum import price (MIP) on a trimmed list of steel products for two months will benefit the industry, especially long steel players which do not attract any ADD as of now, it said.

"India's steel imports, which fell by around 29 percent on year-on-year in the April to June quarter of the current financial year largely due to MIP and Safeguard Duty(SGD), are expected to reduce further in the coming months, thus helping domestic mills regain lost market share,"the report quoted Jayanta Roy, senior vice-president and co-head, corporate sector ratings as saying.

Domestic hot-rolled coil (HRC) prices witnessed a drop in July 2016 on account of weak demand and subdued Chinese export prices. However, after the imposition of ADD in August 2016, HRC prices have increased by Rs. 1,500 per tonne, and are expected to remain buoyant in the near term as domestic HRC prices are still cheaper than landed cost of Chinese import offers by about 13 percent. Nevertheless, in ICRA's opinion, given the marginal demand growth of 0.4 percent in Q1 FY2017 and an overcapacity-related concern in the domestic market, steel prices are unlikely to increase significantly from the current levels unless demand growth strengthens. In such a scenario, an expected revival in rural demand following a normal monsoon after two years, and the likely rise in discretionary consumption after the 7th Pay Commission payouts, remain critical for an improvement in domestic steel consumption in the second half of FY2017.

On the raw material front, India's iron ore production has increased by almost 35 percent YoY in Q1 FY2017, on the back of a 23 percent YoY growth registered in FY2016, being led by rising supplies primarily from Odisha and Goa. With domestic crude steel production growing by a modest 0.9 percent and 4.8 percent YoY in FY2016 and Q1 FY2017 respectively, domestic iron ore prices have remained under pressure, correcting by around 13 percent between April and August of 2016. However, spot prices of coking and thermal coal have witnessed a sharp increase of about 39 percent and 20 percent respectively since end May 2016, which is likely to increase the cost of production of blast furnace operators and sponge iron players respectively.

Consequently, ICRAestimates that notwithstanding the lower price of iron ore between May and August of 2016, cost of major raw materials is expected to increase by around Rs 1,580 per tonne for blast furnace players, and by around Rs 390 per tonne for sponge iron manufacturers dependent on imported coal.

Domestic steel prices have increased in the second week of August 2016 post the imposition of ADD. However, given the weak domestic demand, the extent of increase has been only around 5 percent from the July 2016 levels, and currently remains lower than the previous peak levels achieved towards the end of May 2016.

"Steel demand in India remains soft during the second quarter because of lower construction activities during monsoon. This, coupled with the higher coal costs, and a limited price rise off late, will keep the operating profit margins of domestic steel companies under pressure in the current quarter", Roy added. Also, debt coverage indicators of the leading four domestic steel players (accounting for around 45% of the current domestic capacity) have deteriorated significantly in the last few years, with the total debt to operating profit and interest coverage ratios falling to 9.6 time and 1.3 time only in FY2016. The situation in case of mid-sized steel players is even more worrying. Given the significantly high debt levels contracted by these companies in the last few years, ICRA expects debt protection metrics of steel players to remain depressed in the near term.
Source:Business Standard

Coking coal imports in India may firm upto 50 million tonnes

A rise of 14% over 43.7 mnt imported in 2015

Coking coal imports by Indian steel makers are pegged at 50 million tonnes (mt) in calendar 2016, a 14 per cent increase over 43.7 mnt imported in 2015.

Inbound coking coal shipments are set to go up on the back of revival in the steel industry thanks to favourable factors such as minimum import price and imposition of safeguard duty.
According to analysts, limited domestic availability of the steel making ingredient would fuel more imports.

“Imported coking coal accounted for two-third of the totalcoal consumption by the steel sector in India. According to the commerce and industry ministry, India imported 43.5 mnt of coking coal in 2015. Considering the limited scope of increase in domestic coal production, India may have increased dependency on imports of coking coal to meet the significant proportion of the demand,” said Pukhraj Sethiya, associate director (mining and metals) at PricewaterhouseCoopers (PwC). India’s crude steel production capacity is estimated at 300 mnt by 2025, a three-fold increase from the present level.

According to the PwC analyst cited above, any increase incoking coal demand would need to be met through imports.

Coking coal prices in the international markets have been declining for the past two years, making imports of the material cheaper and a workable option for steel companies in India. From the level of $216.8 a tonne in 2012, Australian benchmark metallurgicalcoal contract prices have tanked to $85.6 a tonne in 2016 according to Resources & Energy Quarterly, Office of Chief Economist, Australia. The price outlook is expected to stay subdued and is projected at $78.3 a tonne in 2017, Sethiya added.

Manish Kharbanda, executive director and group head (mines & minerals), Jindal Steel & Power Ltd (JSPL) said, “The revival of steel demand in the country and enhanced capacity utlisation thereof is expected to push up coking coal consumption & will be fueling coking coal imports too. However, a 2.5 per cent import duty on coking coal & a clean energy cess of Rs 400 per tonne is affecting the industry margins significantly especially at a time when the market is highly volatile. Indian steel industry has requested to the finance ministry to abolish the 2.5 per cent import duty on coking coal, a scarce commodity in India.”


To give a fillip to coking coal imports, the Government of India is understood to have initiated steps to cut import duty.

Ranjan Mishra, executive director, Visa Steel, said: “As steel makers look at greater capacity utilisation, they will need to import more of coking coal. Additionally, the Government of India's proposal to lift import duty on coking coal and keeping the commodity out of clean cess will boost imports.”

According to Union commerce and industry ministry and International Energy Agency data, the global seaborne coking coal trade volume was 276.3 mnt in 2015.

Source : Business Standard

Coal India to produce 71.7 mt coking coal by FY20

NEW DELHI: Coal India Limited has targeted to produce 71.77 million tonnes of coking coal of the total production of 1,000 million tonnes by 2019-20. Coking coal production stood at 53.8 million tonnes in 2015-16, power, coal, renewable energy and mines minister Piyush Goyal said on Thursday. 

The initiative aims at reducing imports of coking coal.

The enhancement in domestic production of coking coal is envisaged to reduce coking coal imports. However reduction of coking coal imports totally would not be possible due to the constraint of availability of metallurgical grade coal from domestic sources", he said in a written reply to a question in Lok Sabha. australia will remain major source of import for Coking coal in India. Coal India ltd is also working on aquring mines in S.africa.

Thermal coal market analysts pinpoint Southeast Asia region for standout growth

-29 Aug 2016 349 am EDT/749 GMT

Southeast Asian countries including Malaysia, Thailand and Vietnam are seen as growth markets for the consumption of imported thermal coal in the years out to 2020, as coal-fired electricity is used to fuel their fast-growing economies, said analysts at the 11th Coaltrans Australia conference in Sydney last week.

In a 10-year outlook for the Asia seaborne thermal coal market, Mark Gresswell, chief analyst at Australian mining consultancy group HDR Salva said three-and-a-half billion people are living on electricity consumption below the level in Japan.

"Eight of the most populous countries are in Asia, and 54% of the world's population live in Asia," he said.

To move these people to Japanese levels of power consumption will require an extra 4,300 TW of electricity generation.

This step change in levels of power generation in Asia will require an 80% increase in global coal production.

Coal-fired power generation is a relatively cheap source of energy at $30/MWh, and is less than half the cost of generating electricity from gas at $65/MWh, said Gresswell.

"This is why coal will have a big role to play in Asia," he said.

Nuclear electricity generation has come under scrutiny in Asia following the tragic accident at Japan's Fukushima-Daiichi plant in 2011, and some Asian nations have lowered their projected share of this fuel in their future generation mix.

Japan's long-range plan is to draw 20%-22% of its electricity production from nuclear plants, and South Korea has a target for nuclear power generation of 30% by 2030, down from 41% previously.

"Local communities are very concerned about having nuclear plants in their backyards," he said.

And, the only real alternative fuel to nuclear is coal, he stated.

MARKET IN TRANSITION

Gresswell characterized 2016 as a year as a year of "transition" for the seaborne market for thermal coal, as it moves from a supply surplus to a supply deficit that will likely lead to a recovery in prices.

"We are seeing large tonnages of Colombian coal moving to Asia," said Gresswell, adding this new trade was emblematic of demand growth in Asia drawing tons to the region.

In China, imported thermal coal is competing strongly with Chinese coal, and Beijing's tough stance on capping domestic production is being backed up by mine inspections that could result in some closures of local mines, he said.

Southeast Asia holds the promise of becoming the next India, in Gresswell's eyes, as countries in this region seek to diversify their fuel supply arrangements for electricity generation which is growing at a current rate of 12% per year.

For example, Vietnam's imports of thermal coal could grow to 147 million mt by 2030 from 63 million mt in 2020, he said.

The country is aiming to build 46 new coal-fired power stations ranging in size from 40 MW to 600 MW in capacity.

Fully, 50 GW of new coal-fired power capacity is set to come online in Southeast Asia in the next few years to 2020, and will require an additional requirement for the region of 100 million mt of imported thermal coal, said Gresswell.

Indonesia alone will need to consume an extra 80 million mt of thermal coal for its additional 20 GW of coal-fired power plants by 2020, and most of this supply could come from the country's domestic market.

Given this additional demand growth for thermal coal in Southeast Asia in the coming years, it is difficult to see where the region's additional requirement for 100 million mt will be sourced from.

"There may be some latent tons from the US. Australia is almost tapped out," he said.

Speaking later in a panel discussion, Gresswell expanded on the theme of supply relating to Australia.

"There are no new mines being developed [in Australia]. There are some small expansions, but they are offset by closures," he said.

"Higher prices will incentivize a few additional tons onto the market, but it won't reach 150 million mt," he said.

MORE INQUIRIES FROM SE ASIA

Also during the panel discussion, Sam Fisher, general manager for marketing at Australian coal producer New Hope Coal said: "As a coal producer in the last 12 months we have seen a lot more inquiries coming from Vietnam, and also some inquiries from the Philippines and Malaysia."

India was an arbitrage market for Australian thermal coal that greatly depended on freight differentials, he added.

Gary Vernon, global head of coal trading for Australian bank Macquarie said: "With a low freight environment, Australian coal competes everywhere."

There has been a significant increase in South American demand for Australian thermal coal because of lower vessel freight rates, he said.

Matthew Boyle, principal consultant at commodities analysis and consultancy firm CRU said Australian coal exports had stayed relatively flat, possibly as a result of take-or-pay contracts for rail and port infrastructure used by Australian coal producers.

In China, the central government's policy to restrict domestic coal mines to operating for only 276 days in a calendar year had been a "significant driver" in the recent improvement in prices in the Chinese coal market.

"Not only is it being implemented, but at rates we did not expect," he said of the production restriction.

But, in driving domestic thermal coal prices higher, Beijing's production policy could have an unintended side effect.

"Now, with [domestic] prices getting close to Yuan 500/mt [FOB Qinhuangdao for 5,500 kcal/kg NAR thermal coal] there is the potential for some cut production to come back online," he said.

China's domestic coal industry is "massively fragmented" with 10,800 individual mines spread over the country, and 7,000 of these have a capacity of under 300,000 mt/year.

"The smallest mines only make up 10% of production," he said.

Beijing is aiming to eliminate 500 million mt of production capacity in China's domestic coal industry over a three-to-five year period, but even if it was to achieve this outcome, it would not be enough to improve the sector's overall profitability, he said.

For Japan, which restarted its fifth nuclear power reactor a couple of weeks ago, its coal demand is forecast to be 130 million mt by 2020 and focused mostly on imported fuel with an energy content of more than 5,700 kcal/kg NAR, said Boyle.

South Korean import demand for thermal coal was seen by Boyle as staying relatively steady at around 85 million to 90 million mt/year.

Southeast Asia is also viewed by Boyle as a bright spot for thermal coal demand and the region is expected to require an additional 65 million mt of higher-grade bituminous thermal coal by 2020.

"We are extremely positive on thermal coal demand in Southeast Asian countries," he said.

"Most of the demand for thermal coal will come from Malaysia and Thailand and will continue out to 2020," he stated.

China is starting to retire some older coal-fired power stations and for environmental reasons, leading to 137 GW of generating capacity for this fuel being taken offline by 2020, although the country will add 23 GW of coal-fired electricity generation in 2016 alone, he added.

India's imports of thermal coal were projected to be 65 million to 70 million mt by the year 2020 by Amit Kumar, head of coal sourcing and power trading at Jindal Steel & Power.

Though he said he believed there would be a shift to higher calorific value thermal coal in the years ahead, that would offset declining trade volumes.

"Sponge iron and cement plants will continue to import coal from South Africa and Australia," he said.

Coastal power plants in India with a combined generating capacity of 10 GW to 12 GW will remain dependent on imported cargoes too, he added.

source:(Platts)

Indian utilities’ April-July thermal coal imports fall 17.5% on year: CEA

Indian power utilities imported around 22.6 million mt of thermal coal in April-July, down 17.5% from the corresponding period last year, according to the most recent data from the Central Electricity Authority.

Of the total, around 7.6 million mt of steam coal was imported by 27 utilities for blending with domestic coal, while around 15 million mt was imported by 10 utilities for plants based on imported coal.

While 16 utilities didn’t import any coal during the first four months of the current 2016-17 fiscal year, data was not available for two utilities.

Adani Power imported the highest volume at around 5.4 million mt, followed by Tata’s Mundra ultra mega power plant at almost 3 million mt and JSW Energy at around 1.4 million mt and state-run Tamil Nadu Generation and Distribution Corp or TANGEDCO at 1.2 million mt, data showed.

CEA has not assigned any targets for power utilities for the current fiscal year because of an increased supply of domestic coal from state-run miner Coal India Limited (CIL).

However, they can import coal if they find imported material to be more economical than using domestic coal, especially for coastal power plants, even though the government aims to eliminate coal imports within a couple of years.

Utilities imported around 80.47 million mt of steam coal in fiscal year 2015-16, down 11.8% year on year, and below the target of 84 million mt. While 36.98 million mt was imported for blending, 43.49 million mt was imported for plants based on imported coal.
Source: platts

China’s Thermal Coal Imports behind the latest Baltic Dry Index Surges

August 25, 2016 22:21 GMT

The Baltic Dry Index has surged this week, rallying above 700 points with a large 12-point gain on Thursday to hit 718 points, just a day earlier, the index climbed 14 points, the largest single day gain that the BDI had seen in months.

The BDI continued its advance on Thursday as recent coal import data from China supported the sentiment that 2016 could offer a strong finish for the BDI. Data released on Wednesday from the General Administration of Customs showed that China imported 9.31 million mt of thermal coal in July, rising 30.7% year on year and up 23.5% from June to the highest level since December 2014.

Thermal coal buyers have been increasing their purchases since April when the Chinese government implemented a policy to restrict domestic coal production. Now, with winter approaching, the demand to import coal to China could skyrocket as the country prepares to meet its peak demand coal burning season, and most of this imported coal is coming from Australia, resulting in an increased demand for BDI component ships to transport coal between the two nations. In July, coal shipments from Australia to China rose 16% year-over-year, and 43% from June.

After a bit of a lull in the summer, there is confidence that demand to ship goods ahead of winter will take off. The main commodities that could be stockpiled ahead of winter include iron ore and coal, and these two commodities are primarily transported via capesize ships. Right now, smaller BDI ships are also seeing strength to ship soft commodities but this demand could taper later in the year. While overall, iron ore and coal demand should support the BDI through this year, once winter hits there will likely be a lull and the BDI will see a correction. Last winter, the lull period sent BDI down to a record low of 290 points in February.

source: economiccalendar