Global overview of the steel industry
? Steel is used in every important industry, energy, construction, automotive and
transportation, infrastructure, packaging, and machinery. By 2050, steel use is projected
to increase by around 20% compared to present levels to meet the needs of our growing
population.
? Skyscrapers are made possible by steel. The housing and construction sector is
the largest consumer of steel today, using more than 50% of the steel produced.
? The global steel market reached a value of US$874.6b in year-22. The market is
predicted to reach a value of US$1,052.25b (Source-IMARC) by 2027, exhibiting a growth
rate (CAGR) of 3.02% from 2022 to 2027. The world crude steel production reached 1951
million tons (mt) in FY22, showing a growth of 3.6% over CY 2020.
China has been a leader in this industry for quite a long time now, but India has the
potential to emerge as a leading global leader with the right strategy and action plan.
Global trend, growth projection and forecast.
Table 5: steel demand outlook by country (2020-2023f)
Country |
2020 |
2021 |
2022 |
2023f |
| China |
995 |
952.0 |
952.0 |
961.6 |
| EU |
140.8 |
163.6 |
161.5 |
167.9 |
| India |
89.3 |
106.1 |
114.1 |
120.9 |
| US |
80 |
97.1 |
99.8 |
102.1 |
| Japan |
52.6 |
57.5 |
58.2 |
58.8 |
| S. Korea |
49 |
55.6 |
56.2 |
56.8 |
| Russia |
42.4 |
43.9 |
35.1 |
35.1 |
Source: ey-steering-india-into-a-us-5-trillion-dollar-economy-with-steel indian
overview of the steel industry
India is currently the worlds second-largest producer of crude steel, producing 118.20
million tons (mt) of crude steel with a growth rate of 17.9% over the corresponding period
last year
(CPLY). Indias finished steel consumption is anticipated to increase to 230 MT in
2030-31 from 133.596 MT in FY22.
During 11M FY23, the crude steel production and finished steel production increased by
4% and 6.2%, respectively, on a y-o-y basis. Domestic consumption of finished steel
increased by 11.6% y-o-y to 107 million tonnes during this period.
Source: Ministry of Steel
According to CareEdge Research, Indias steel production is estimated to be within the
range of 123-127 million tonnes, representing a growth rate of 4-7% in FY24. The domestic
consumption growth rate is also expected to be 8-10% in FY24, driven by increased
infrastructure spending, a surge in real estate and construction activities, and strong
auto sales. Over the longer-term India is expected to achieve 180 mn tonnes of
steel-making capacity by 2026. At good efficiency rate of 90% can achieve 160 mn tonnes of
production, 33 mn tonnes higher than 2022-23.
As India has entered its pre-election year in 2023, the government is likely to
increase investments both at the state and central level. This includes a 33% increase in
budgetary capital expenditure to Rs 10 lakh crores for infrastructure, a capital outlay of
Rs 2.4 lakh crore for Indian Railways, and the announcement of 100 transport
infrastructure projects. These initiatives bode well for domestic demand.
Additionally, the uptick in construction and real estate activities is driving the
demand for steel products. The automobile sector, which witnessed a 21% year-on-year
growth during 11M FY23, further indicates the growing demand for steel.
DOMESTIC PRICES:
In April 2022, the average domestic finished steel prices reached their peak at Rs
96,079 per tonne. However, after a sharp increase, they began to decline and fell to Rs
69,084 per tonne in December 2022, representing a 17% year- on-year drop. This decline was
caused by the imposition of an export duty on a range of finished steel products, leading
to lower exports and an increase in domestic inventories. Additionally, the prices of iron
ore softened by about 21% to Rs 4,100 per tonne until December 2022, compared to
Rs 5,965 per tonne in May 2022. This was due to an increase in domestic supply
following a hike in the duty on iron ore exports to 50% since May 2022. After the
reduction in export duty on iron ore in November 2022, domestic prices began to rise. In
January 2023 prices for iron ore lumps and fines started regaining the lost ground, which
further boosted the prices. As of February 2023, iron ore prices have increased by 2%
month-on-month to Rs 4,400, resulting in higher domestic steel prices.
IRON ORE:
Iron ore is regarded as the second most important commodity behind oil. It is an
essential input to produce crude steel. Iron ore makes up 5% of the earths crust and is
the second most abundant metal after aluminum. 98% of the iron ore mined is used for steel
making. Pig iron is produced from the smelting of iron ore and is further processed to
remove impurities and reduce carbon content to produce steel.
Iron ore is also used in ferro-alloy, cement, foundry, and glass factories and has
three types:
? High-grade ore - has >60% Fe content, like the Brazilian and Australian
hematite. Historically, it has provided a direct feed to smelters either as a raw lump or
fines, or in a processed form as sinter or pellets
? Medium grade - ores having 55% to 60% Fe content.
? Low-grade ore - iron-rich rocks having lower than 55% Fe content.
Iron ore is the source of primary iron for the worlds iron and steel industries. It is
therefore essential to produce steel, which in turn is essential to maintain a strong
industrial base. Almost all (98%) iron ore is used in steelmaking. Iron ore is mined in
about 50 countries. The seven largest of these producing countries account for about
three-quarters of total world production. Australia and Brazil together dominate the
worlds iron ore exports, each having about one-third of total exports.
As an essential input to produce crude steel, iron ore feeds the worlds largest
trillion-dollar-a-year metal market and is the backbone of global infrastructure. To meet
the growing demand for steel products, world iron ore production has increased
dramatically over the last decade. As a result, traditional high-grade iron ore reserves
are being significantly depleted and many new iron ore deposits of lower-grade and more
complicated mineralogy are being mined.
Global iron ore market to reach 2.7 billion metric tons by 2026.
? Amid the COVID-19 crisis, the global market for iron ore estimated at 2.4 billion
metric tons in the year 2022. It is projected to reach a revised size of 2.7 billion
metric tons by 2026, growing at a CAGR of 3% over the analysis period.
Fines, one of the segments analyzed, is projected to grow at a 4% CAGR to reach 1.3
billion metric tons by the end of the analysis period. After a thorough analysis of the
business implications of the pandemic and its induced economic crisis, growth in the
HBI/DRI segment is readjusted to a revised 3.4% CAGR for the next seven-year period. This
segment currently accounts for a 27.3% share of the global iron ore market.
Indian overview of iron ore industry
? India has large reserves of iron ore, bauxite, chromium, manganese ore, baryte,
rare earth and mineral salts. India is home to fifth-highest reserves of iron ore in the
world.
? Easy availability of low-cost labor force and presence of abundant iron ore
reserves make India competitive in the global set up.
? The iron and steel industry in India is among the most . important industries in
the country. India ranks fourth globally in terms of iron ore production.
? Majority (over 85%) of iron ore reserves are of medium- to high-grade and are
directly used in blast furnace and direct reduced iron (DRI) plants in the form of sized
lumps or sinters or pellets.
It is imperative to note that iron ore growth projections are directly linked with
steel demands, as 98% of iron ore is used in making steel.
Rise in infrastructure development is a driver of demand and supply.
Demand for iron and steel will continue, given the strong growth expectations for the
residential and commercial building industry. As Envisaged, even 160 mn tonnes of steel
production by 2026 could also lead to enormous demand for iron ore in India. Considering
the challenges in greenfield expansion of iron ore mining, the supply of iron ore could be
challenging to meet the enormous demand.
? With the envisaged increase in the production of iron ore for targeted steel
production, there is a need to go for large-scale mining operations. Larger and deeper
mines will have to be operated at higher rate of production. This will call for greater
bench heights, larger blast-hole diameters and larger machinery. Desired grade control of
ROM feed to the processing/ beneficiation plant for treating the ore in its totality will
be required. This will also bring into play greater considerations required for minimal
environmental impact and degradation due to large-scale operations. India is almost
self-sufficient in terms of resources. But with the envisaged crude steel production
capacity and requirement of iron ore, including exports, there is a need to exploit the
resources judiciously for sustainable growth. If the dependence on high grade ore is
continued, the resources would get depleted in another 15 to 20 years. Depleting high
grade reserves coupled with increasing demand poses enormous challenges for geological,
mining and beneficiation activities.
? It is in this regard that the mining threshold has been revised to 45% Fe and 35%
Fe for hematite ore and siliceous hematite ore, respectively. It is now obligatory for the
mine operators to exploit and utilize low-grade ores which until now was not happening. In
fact, there is a need for starting exploitation of Banded Hematite Quartzite/ Banded
Hematite Jasper and magnetite ore.
Beneficiation the way forward
The rapid upward trend in steel output has put pressure on the availability of quality
ore for steel production. In order to consume lower grade ore for steel making,
beneficiation of ore is required. Iron ore extraction in India yields lumps to fines in
the ratio of 2:3 60% of the ore generation is in the form of iron ore fines.For efficient
utilization of ore produced, it is imperative to consume the iron ore fines.
Beneficiation efficiently removes silica, alumina, clay, and other contaminants from
feed material to increase the Fe value in the final ore.
Silica requires very high temperatures in the kiln, therefore, increasing energy costs
when it is present in the feed to the kilns. Both alumina and silica build up in the kilns
as a coating, reducing the efficiency of the kilns over time. This requires that the kilns
be shut down in order to facilitate the removal of this material build up.
Iron ore beneficiation plants target these contaminants and ensure their effective
removal from the feed to the kilns. This has the effect of increasing the Fe value of the
iron ore, allowing for a more efficient steel production process.
The Government of India in the Ministry of Mines had constituted an Inter-Departmental
Committee to inter-alia recommend the Consultation on the issue of Utilization of Low and
Lean Grade Iron Ore Resources in the Country. In this regard Ministry of Mines had
published the note for industry consultation vide circular No 1/6/2023- Mines VI dated
12th August 2022. Via this notification, under para no-2 (i) it is recommended that
low-grade mineral beneficiation is mandatory.
Our companys Surjagarh mines stands to benefit from this recommendation of the
ministry panel as it proposes to set up a beneficiation plant to upgrade the low grade BHQ
materials to produce the +62% Fe grade saleable materials which will rope in huge revenue
for the state exchequer in terms of Royalty, DMF, NMET & taxes
IMPACT OF AUCTIONING OF IRON ORE MINES
The effective tax rate (ETR) on mining in India ranges from 45% to 50%, while the
global average ranges from 34% to 38%. At present, in addition to MMDR Act requirement of
royalty, payment towards DMF and National Mineral Exploration Trust (NMET), a
mine-operator is also required to pay other fees and levies for use of forest-land under
the Forest Conservation Act, 1980 and the Indian Forest Act 1927, including forest tax
levied on forest produce procured from forest areas and compensatory afforestation
charges.
The amendments in the MMDR Act in March 2021 were aimed to bring out transformative
reforms in Indian mining sector. Odisha having huge iron ore resources, completed its
first phase of iron ore auctions in 2020.
The 2020 auction gave rise to high winning bids. It witnessed bids in terms of revenue
sharing premiums ranging from a low of 90.9% to the highest of 155%. An analysis shows
that the total statutory liability, after factoring additional royalty, as a percentage of
the sale price, is very wide across various categories of mines mentioned above, ranging
from as low as around 20% to as high as 175%.
COMPANY SCENARIO
The Company is one of the largest coal based DRI manufacturer of Maharashtra with a
production capacity of 2,70,000 TPA, along with a captive power plant with 30MW capacity,
with additional 70,000 tonnes coming up in FY24.
The Company was awarded a lease for iron ore mines in 2007 at Surjagarh Village,
Gadchiroli district (having Maharashtras richest iron ore reserve), initially for a
period of 20 years the same during the year has been extended to a total period of 50
years under MMDR Act, 2018. Due to instability in the region, the Companys mines faced
various challenges in operations. In May, 2021, the Company entered into a strategic
partnership with the largest Mine Developer & Operator of the Country
("MDO"), Thriveni Earthmovers Private Limited (now a Co-promoter). Thriveni
Earthmovers Private Limited, with all its expertise from September, 2021 recommends mining
operations at the mines site in full capacity.
With this mine, the company strengthened its backward integration process for its
sponge iron production. The company has also been selling iron ore on merchant basis. The
company envisages in maximising the utilization of iron ore reserves .
The company plans to build on its iron ore reserves its growth trajectory towards an
integrated value-added steel producer. Few differentiating factors that make our growth
trajectory more promising
1. Mine via Allocation route- Makes us cost-competitive against the mine which is
auctioned at significantly higher prices. The companys iron ore mine has been awarded via
the Allocation route which spares the company from paying additional premiums/royalties.
The new mines auctioned are entitled to additional royalties ranging up to 170%. This
gives an inherent competitive advantage to the company garnering better returns. This
remains the moat for the company over a longer-term basis.
2. Rich and higher Iron ore Reserves:
The companys iron ore reserves are high-quality iron ore with very low Silica and
Alumina content, making it an ideal choice for its captive consumption as well as other
sponge and steel makers.
Preliminary reports suggest reserves of 180+ mn tonnes.
Further studies are also being undertaken to evaluate BHQ (Banded Hematite Quartz)
quantities.
Reserves of BHQ, which can be beneficiated, have an initial estimate of 550 MMT. These
are preliminary studies & the final UNFCC-approved JORC report shall be issued under
the aegis of Tata Steel Industrial Consulting Ltd soon after their detailed study, which
is expected by H1FY24.
The company is optimistic about holistic utilisation of its iron ore reserves and
utilising its each reserves over the stipulated period of its mining life.
Thus the company has charted its growth plan in forward integrating into steel making
justifying the optimum utilisation of its iron ore reserves
3. DEBT FREE - a net cash Company
The company remains completely committed in keeping its balance sheet healthy which
shall keep the growth engine moving without getting de-railed given the cyclical nature of
the steel industry. Company cost competitiveness and efficient production techniques would
keep garnering sufficient cash flows which shall keep the growth momentum steady going
ahead.
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