Mining cost for steel companies to go up
The District Mineral Fund, proposed by the Government in the new Mines and Minerals Development and Regulation Act, will push up costs not only for steel companies that have bid for new coal blocks but also majors such as Tata Steel and SAIL that have got their old lease renewed for 30 years.
Speaking on the sidelines of the ‘India Steel 2015,’ an industry event organised by FICCI, Narendra Singh Tomar, Minister for Steel and Mines, said the contribution to District Development Fund by companies whose captive mine licence were renewed would be equal to the royalty as against 33 per cent of royalty they were paying earlier.
On the other hand, he said, for companies that have won coal blocks through the auction, the DDF contribution would be one third of the royalty.
This apart, he said the royalty and contribution to DDF for minor minerals such as basalt, laterite stones, rubbles and river sand would be decided by the State governments. The Central Government has decided to auction 10 major mineral mines including coal, bauxite, iron ore, limestone and manganese ore.
Tomar said the Centre is considering the demand to hike steel import duty and a decision would be taken in the near future in consultation with the Finance and Commerce Ministries. By the virtue of MMDR Act, mining companies need not wait for getting environment clearance from Indian Bureau of Mines, but can start work after getting approvals at the state level. The industry should target to achieve production capacity of 300 million tonnes by 2025 while the Government is working hard to push demand by promoting the ‘Make in India’ concept.
Rakesh Singh, Secretary, Ministry of Steel, said globally the steel industry is facing tough times with slow growth and significantly excess capacity with over 25 per cent of the capacity in Europe is surplus and China alone is reported to be having over 200 million tonnes of excess capacity.
Sugar refiners fall on price concerns
Shares in Indian sugar refiners fell as Bajaj Hindusthan Sugar Ltd was down 1.9 per cent, Mawana Sugars Ltd 2 per cent, Balrampur Chini Mills Ltd 0.4 per cent and Shree Renuka Sugars Ltd 0.6 per cent.
India is likely to produce 27 million tonnes of the sweetener in 2014-15, up about 2 per cent from the previous estimate, industry body said.
Analysts said, “higher production will depress local prices further.”
This will dampen margins of sugar mills, many of them are struggling with cash flows, they added.
CIL’s coal imports to touch 1.6 mt in FY16
COAL India Ltd (CIL) is likely to import over 1.6 million tonnes (mt) of coal, to be supplied to power producers, in the current financial year.
“Coal India (CIL) will import 1.6 mt of coal for power producers in FY16,” a source said.
The state-owned miner had earlier engaged MMTC through a competitive bidding process for arranging such imported coal.
According to reports, CIL had imported 0.48 mt of the dry fuel on behalf of power plants in FY15.
Earlier this month, MMTC had said that it received orders for import of steam coal from CIL and Andhra Pradesh Power Development Co. Ltd.
MMTC has bagged the order to supply about 2.35 mt of imported steam coal during FY16.
The changing face of Zuari Agro Chemicals
Zuari Agro Chemicals Ltd is scripting a transformation by buying Mangalore Chemicals and Fertilizers Ltd. It aims to increase market share, improve the share of non-subsidy based businesses and lower dependency on trading, the firm said in a presentation.
The purchase of Mangalore Chemicals can further this strategy. It would almost double Zuari group’s domestic urea capacity, based on the data provided in the presentation. It will add two percentage points to its diammonium phosphate and complex fertilizers market share. Its market share in water-soluble fertilizers will rise from 13% to 23%.
The additions to capacity and market share can take Zuari a long way. The company’s dependence on imports is rather high. In 2013-14, more than 30% of sales volume was imported. Since that has lower margins than locally made fertilizers, Zuari’s profitability has taken a hit. As a result operating margins narrowed to 4.7% in 2013-14.
Mangalore Chemicals derives a lower percentage (25%) of revenues from imports. However, since it uses naphtha against the industry norm of natural gas, the company’s profitability is also low. Operating margin is below 7%. Profits have either stagnated or are growing in single digits.
This compares unfavourably with industry leader Coromandel International Ltd, a private firm that derives only 7% of sales volume from imports. It generates operating margin of almost 9%. Return on equity in 2013-14 was 19%, compared with Zuari’s negative return. It posted a loss in 2013-14.
Perhaps that’s why the company has got a new head. Last month, Zuari appointed Kapil Mehan as managing director. As managing director of Coromandel International from October 2010 to February this year, Mehan had helped the company grow its non-fertilizer business. From 14% in 2010-11, the contribution of the non-fertilizer business to Coromandel’s turnover increased to 18% in December. The rise may look small, but this growth led to a disproportionate 10 percentage point expansion in the contribution of the non-fertilizer business to Coromandel’s operating profit.
This strategy is being implemented at Zuari now. Mangalore Chemicals will help Zuari expand its domestic capacity and non-subsidy based business to an extent.
The results may take time to show. Building a non-subsidy business in lieu of trading can be time-consuming. Non-subsidy based businesses like specialty nutrients and crop protection face intense competition. It took Coromandel almost four years to increase its non-subsidy based business’s contribution to overall revenues by four percentage points.
Secondly, it is not yet clear when Mangalore Chemicals will receive adequate gas supplies, which can help it improve profitability.
India’s steel demand seen growing as Modi seeks faster investment
India’s demand for steel, an economic growth indicator in Asia’s third-largest economy, is expected to rise at the fastest pace in four years, benefiting top producers including Tata Steel Ltd, Steel Authority of India Ltd (SAIL) and JSW Steel Ltd.
Demand may expand by about 5% this year to March, according to the average of eight estimates from industry executives, government officials and analysts surveyed by Bloomberg, from 3% in the previous year. Sales will be boosted by a possible revival in stalled projects and home and vehicle purchases after India’s central bank cut interest rates.
Higher demand for the alloy will help producers cope with a glut created by record imports, and the lowest prices in four years. India’s economic growth will surpass China’s for the first time since 1999 in the year to March, according to the International Monetary Fund (IMF).
“Lowering of interest rates will cut capital costs and push up investments,” T.V. Narendran, managing director at India’s biggest producer Tata Steel, said at a conference in Mumbai on Thursday. “It should also drive consumption of homes and cars.”
Reserve Bank of India (RBI) governor Raghuram Rajan lowered rates by 25 basis points each in two separate unscheduled cuts in January and March, prompting lenders to pass on benefits to consumers. The move is expected to boost demand for cars, homes and consumer durables. A wider-than-expected drop in the nation’s wholesale prices reported on Wednesday further boosted the odds of a third interest rate cut from the central bank this year.
About $392 billion of infrastructure projects, more than the size of Thailand’s economy, were stalled as of early March, government data show. That has left in its wake stressed bank debts that can jump to almost 13% of the total loan advances, the highest level since 2001, India Ratings forecasts.
“There are issues that need to be addressed for a sustainable rise in steel demand and tackling the debt issue at steel factories is one of them,” said Rita Singh, chairperson at Mideast Integrated Steel Ltd. “We should also look at what the country’s needs are going to be and not just go on building capacities.”
Prime Minister Narendra Modi is seeking the opposition’s support to enact a law that speeds up land acquisition, one of the biggest hurdles facing industrial projects.
Signs of an economic revival led Moody’s Investors Service last week to raise India’s credit outlook to positive from stable.
India is planning to triple its steel production capacity to 300 million tonnes in 10 years, steel minister Narendra Singh Tomar said.
This post was written by Atlantic Admin