Orient Refractories Limited (ORL) is in the business of manufacturing and marketing
special refractory products, systems and services to the steel industry in India and
Globally. ORL is market leader for special refractories in India and has many global
customers for its international quality products. ORL produces nearly 50,000 tonne of
refractory per annum including customized products and system solutions.
The refractory products are mainly used in high temperature manufacturing processes in
iron and steel industry, metal smelters, cement, glass industry and for other industrial
products. Demand for refractory is primarily dependent on the consumption of steel, which
accounts for about 75% of the total value and the remaining is used for glass, cement,
non-ferrous, petrochemicals etc.
Products of ORL are manufactured at its state-of-the-art manufacturing facility at
Bhiwadi, in Rajasthan & Tangi in Orissa. The Company has ongoing programs for
improving efficiency and effectiveness of its manufacturing processes, raw material cost,
energy conservation, control over working capital and to produce special refractories at
low cost so as to add maximum value to the customers. Energy efficient installations have
been made at the factory. Best in class safety measures and processes have been put in
place and improved upon at the factory and all working sites.
The products of ORL are of Global standards in quality and highly cost competitive,
which makes it attractive for the customers worldwide.
INDUSTRY OVERVIEW
Review of Global Steel Industry and outlook
The global crude steel production grew by 3% in Calendar Year2019 to 1,869 million
tonne on the back of robust demand from China. While European Unions) (EUs)
manufacturing industry contracted in Calendar Year2019, most of the developed economies
like the US, Japan and EU reported listless growth in steel demand. However, the
developing countries like China and India showed positive momentum in production and
consumption. Chinas crude steel production grew by ~7.7% to 996 million tonne in Calendar
Year2019. According to World Steel Association (WSA), the global finished steel demand is
expected to contract 6.4% Y-o-Y to 1,654 million tonne in Calendar Year2020 on the back
of weak economic conditions, general freeze in consumption, disrupted supply chains and
lockdown enforced across the globe due to the outbreak of COVID-19 pandemic. After the
lockdown was lifted in Wuhan on 8th April 2020 all the major steel using sectors including
construction resumed full scale productivity in China. World Steel Association expects
Chinas steel demand to grow by 1% Y-o-Y in Calendar Year2020. Manufacturing recession in
European Union will continue with the steel demand expected to contract by 16% in Calendar
Year2020. Similarly, steel demand is expected to decline by 19% and 23% in Japan and US
respectively in Calendar Year2020 due to high unemployment, reduction in income levels
and impaired residential construction.
Indias Steel Industry - Review and Outlook
Indias steel demand in financial year2020 was largely subdued despite a small revival
in the start of last quarter of the fiscal year. The crude steel production declined by
1.5% Y-o-Y to 109 million tonne due to weak demand outlook from end user industries and
the countrywide lockdown imposed in last week of March2020 due to the outbreak of
COVID-19 pandemic. The finished steel consumption witnessed a slowdown in financial
year2020 with a muted growth of 1.4% Y-o-Y at 100 million tonne. In Financial Year2020,
Indias economy was coping with a massive slowdown from sectors like capital goods,
automobile, infrastructure and construction which are primarily steel intensive. This
adversely impacted demand for steel and consequently prices also declined to reach the
bottom in September2019. Steel demand started picking momentum from mid of November2019
after the end of monsoon and festive season. The steel demand stabilised in the following
months of December2019 and January2020 before the global steel demand was impacted by
the outbreak of COVID-19 pandemic. The pandemic severely impacted the steel industry in
India by disrupting the labor force and supply chain due to the strictest lockdown
enforced in the country. The outbreak of COVID-19 also impacted the imports from Free
Trade Agreements (FTA) countries in later half of the year. While the imports declined by
18.5% Y-o-Y to 7.17 million tonne in financial year2020, steel exports grew by 31% Y-o-Y
to 11.2 million tonne on the back of weak domestic demand.
The Indian Steel Association has revised downwards Indias Steel demand growth forecast
for 2020. It is expected that all Steel using sectors will remain in negative territory in
2020. It estimates finished steel demand in India to fall in Calendar Year2020. The
assumption is based on lockdown till May2020, further fiscal stimulus boosting demand and
helping the project to complete once the lockdown ends and disruption will end early
June2020. It is expected that any kind of demand recovery will take at least another
month from July2020 onwards on overcoming challenges in the form of getting migrant
labors back resetting the disrupted supply chain and overcoming liquidity constraints
particularly towards working capital needs, cannot be accomplished overnight.
Overall steel production of the country now is expected to reach 90 million tonne as
against 109 million tonne in 2019.
With regard to automotive sector supply chain disruptions both, abroad & within
India have further increased the suffering which had already hit hard due to falling
demand, accumulated inventories demand recovery is slow and expected to increase in
festive season in October2020. Similarly, the machine sector is expected to see continued
decline due to weaker investment, fragile export demand and halted projects in energy,
consumptions & mining. The railway sector is most likely to defer its capital
expenditures. This will affect growth in steel usage negatively.
The COVID-19 crisis is linked with consumers demand, supply, logistics, financials and
human resources. The logistic work has been impacted globally which has disrupted the
movement of raw material and finished goods, which contributes to the growth challenges
across sectors and hence will impact the steel sector negatively. The automotive sector
accounts for 15% of steel usage and consumption & infrastructure account for around
60%, both the sectors are not performing well because of low demand liquidity, low private
investment etc.
Indian refractory Industry
With a production capacity of 1.5 million tonne the India Refractory Industry is an
integral part of the Countrys steel eco system as well as other thermally intensive
industries such as Cement and Glass. Refractories are used as vital input materials in
steel production process, without which the commodity cannot be made.
The nationwide lockdown has disrupted the production of all refractory manufacturers.
Despite the disruption and curtailments in steel production, there is demand of refractory
material. Indian refractory manufacturers are dependent on China for key raw materials
like Bauxite and Magnesia. Clogged logistical network and lack of transportation
facilities are taking toll on timely delivery of raw material. Due to Corona the supply is
erratic from China. It is very difficult to comment on forecast for 2020-2021, even to
comment on short term outlook is difficult because of Governments action which are
changing the situation on day to day basis.
Benefits of the new structure
Year 2018 has seen the Indian steel market becoming the second largest in the world,
further reinforcing the necessity, RHI Magnesita continued emphasis on this geography. The
Indian Steel Ministry has set a 300 million tonne per annum steel capacity target by the
end of 2030 which bodes well for the future of this industry. The Indian steel industry is
undergoing consolidation, which is expected to build up its strength but also to provide a
higher market share for industry
leaders. As a result of substantial restructuring and consolidation in the India steel
industry, demand for higher performance and better quality solutions has increased - a
development which corresponds well to our strengths as a Group and enables us to take
advantage of this position, whilst also working to further strengthen our position in the
market in terms of cost competitive refractory solutions.
As a combined group in India, RHI Magnesites business here will be in a strong
position to benefit from this consolidation on the basis of the breath of the combined
organization as well as its long-standing relationships with the market-leading customers.
The new organization structure will form one strong entity to seize growth
opportunities and enhance the shareholders value. It will help in simplification of the
corporate structure and consolidation of Indian business. One strong entity will enhance
the business and operational synergies, shareholders value and utilization of resources
due to pooling of management expertise, technologies and other resource of the companies.
This will also create a larger asset base and facilitation of access to better financial
resources. For the customers the new entity will provide single window for all refractory
solution under one umbrella. There is also an ongoing exercise to optimize the production
footprint in India through maximizing the operational and supply chain excellence.
Challenges & Opportunities
Challenges:
The financial year 2019-20 was not good for steel sector as all the major steel buying
industries like energy, auto, machinery, construction showed negative growth during the
financial year. The demand was low as compared to 2018-19. India with the GDP growth of
less than 5% has slowed down Industrial growth. Below are the factors that resulted in
challenging times for the industries in terms of growth and margins- Bad debts in banking
system and tough loan process kept private investors away in investing money on greenfield
projects.
- Managing currency risk is a big concern to keep the margins intact. Rupee
depreciation against Dollar and Euro has impacted profitability.
- While steel output prices turned soft, inputs continued to be costlier for domestic
production. There are likely to be pressure on the margins in future.
- Trade tensions between the countries have led to slow geographical growth, new
markets have to be explored for capacity utilization. India and China tension has added to
the scarcity of raw material and logistic problems.
- COVID-19 pandemic has disrupted supplies, demand, human resource and created
uncertainty to Industrial growth.
Opportunities:
The Indian steel industry has a good chance to seize the opportunity as the steel mills
are gearing up for an increase in demand from overseas buyers as the pandemic has choked
the supplies from China. The movement at Chinese Port is blocked, supply gap will emerge
in south east countries, which is a big market for China. India per Capita Steel
Consumption is 60 Kg. as compared world average of 250 Kg. So, we have an opportunity gap
to release. National Steel Policy 2017 states that Indias objective is to increase the
per Capita Steel Consumption from 60 Kg. to 160 Kg. by 2030-31, this in turn would have
300 tonne capacity.
Also, to achieve 5 trillion USD economy by fiscal year 2025, India needs to spend 1.4
trillion USD on infrastructure.
Current Situation and Market outlook:
Steel production after COVID-19, 2020 remains affected due to the countrywide lockdown
(till 31st May20). Outlook for the year as follows:
- Mini steel plants which were shut down have started partial production at 50%-60%
capacity during June2020. Good monsoon and festive season from September2020 onward will
ramp up the sales to 80-90% capacity.
- Integrated steel plants (Operating blast furnaces and coke ovens) like JSW, TATA,
SAIL, JSPL are running at a reduced capacity of 50-70% max in May and in June they have
produced appox. 75% of the usual production level. Expected to come to a level of 90% in
last quarter.
- Labour migration to hometowns affecting production ramp up. Uncertainty among
industry people on experienced manpower availability.
- The auto sales will remain weak till the end of June, also due to COVID-19 impact all
the infrastructure projects are on hold. Probably good monsoon and rural part will pick up
in last quarter.
- Since demand of consumer industry for steel is very low, steel production is only
adding up to inventories.
- No green field project in India in coming half year, investments are very low due to
stringent and strict banking norms.
ENVIRONMENTAL SUSTANIBAILITY
The Company is committed towards clean environment and has stopped use of Pat Coke and
shifted to cleaner fuel (PNG) at Bhiwadi plant. The plan is to gradually convert all
oil-fired Kilns to gas fired Kilns.
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