Showing posts with label MT. Show all posts
Showing posts with label MT. Show all posts

Wednesday, March 06, 2013

Deal with its chronic problem of lack of feedstock

After a decadal starvation of investments, Indian fertilizer industry is hot again in the books of investors and seems ready for a great run in the days to come. Before that, it will have to deal with its chronic problem of lack of feedstock.

Moreover, with the food price inflation still pricking the government and the demand for food grains increasing faster than ever, the government has now started taking keen interest in agriculture related sectors including fertilizers. One can understand the same from the very fact that in FY09 the government fully met its humongous subsidy obligation of Rs.1 trillion that accentuated due to a sudden and unprecedented rise in input prices. In fact, explains N. Raju, Analyst, Fitch Ratings India, that in order to keep fertilizer prices under control at the pick of the price cycle and check it from hurting the demand scenario by any means, the government paid for almost 90% of the cost of many categories of fertilizer recovering only 10% cost from the consumers. In a way such secured environment has also contributed to the resilience in the particular sector. As a result, apart from all plans for new plants and capacity expansion, the existing players have started operating at a higher efficiency level than what they were operating earlier. As per reports, on a cumulative basis (including private, public and co-operatives), the Indian fertilizer industry increased its capacity utilisation to 76.9% of installed capacity (84.1% in case of private sector) from 61.2% in the previous financial year (67.1% for private sector). This in turn has resulted in a total production of 16.3 million MT of fertilizer in FY10 (estimated), a surge of 14% over FY09.

Meanwhile, adding an impetus to the on going resilience, the government itself is attempting to revive 5 closed urea plants with an installed capacity of 2.2 million MT. Praising the move, Manoj Gaur, Executive Chairman, Jaypee Group, which has recently joined hands with Duncan Industries to revive the latter’s urea plant in UP, explains, “In order to ensure food security for the country’s 120 billion people, good agri-production has now become mandatory for us. And in this scenario, fertilizer will play a very critical role. Every year we import nearly an average of 7 to 8 million tonnes of urea, while our own plants here are closed. So, revival of these plants and their modernisation for better output is the need of the hour.”


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles


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Wednesday, July 18, 2012

Big Metal reaches Turning Point

Over the last two years, India has become a net Importer of Steel. As steel makers respond with Brownfield and Greenfield capacity addition Plans and a Slew of asset Acquisition Strategies, B&E analyses what These Players are Exactly up Against!

“Today, the Indian steel sector is at a critical point of its journey. During the current financial year, steel demand has increased by 8%, whereas production has only increased by 3%. This is widening the demand-supply gap, making this country more dependent on exports.”

The above words by our Honourable Steel Minister, Virbhadra Singh (at the 3rd Summit for Mining to Steelmaking) who also spoke exclusively to Business & Economy, underlines the sense of alarm that is building up in the Indian steel industry as well as within our policy makers over the last couple of years. After all, steel is one of the last additions India would expect or welcome in its ballooning import basket. But if the demand-supply gap continues growing as it is doing currently, and if greenfield capacities continue being hit by various issues, one wonders whether this will turn out to be an eventuality or something we could hope to avoid.

From 2008, India has turned a net importer of steel, as per figures released by the Steel Scenario Year Book 2009; and the import bill continues to grow, with imports expected to touch around 6 million tonnes in FY 2010. As a nation, India continues to have a very low per capita consumption of steel (45 kg), but the scenario is changing very fast. Kameshwara Rao, Executive Director – Energy, Utilities, and Mining, PricewaterhouseCoopers, tells B&E, “A strong demand driver is urbanisation, where India is presently a low 28% but this is expected to rise to 41% by 2030. Thus, even with the brown-field and greenfield capacity addition of 35 and 25 million tonnes respectively; we may fall short of the domestic demand.”

Indeed, the scenario does ignite a sense of concern, but it has to be viewed in the right perspective. First things first, we have a short term correction in place to the gap. A. S. Firoz, Chief Economist, Joint Planning Committee, Ministry of Steel, assures B&E that it is not a huge short term scenario, “By 2016-17, India will run into a shortage phase, especially if greenfield capacity developments don’t take place, depending on what kind of growth we experience.”

But in the interim, the major players are going for massive brownfield capacity expansion led by SAIL, which plans to expand its crude steel capacity from 13.4 million tonnes (MT) currently to 24.6 MT (21.4 MT by 2012) and its saleable steel capacity from 12.5 MT currently to 23.1 MT (20.2 MT by 2012) with investments of $8 billion. In all, these expansions are expected to create additional capacity of 33 MT, which would actually give us a surplus situation in 2012-13. This would again put downward pressure on price; and could potentially make India a net exporter once again, according to the latest Fitch Ratings report.

The worry, as Ministry of Steel’s A. S. Firoz points out, comes later in the next decade, when the demand again grows fast enough to outstrip supply. It is here that we talk about the problems we are facing regarding implementation of greenfield projects like Posco and Arcelor Mittal; where issues of environment and rehabilitation have cropped up recently. Vikram Amin, Executive Director, Essar Steel, points out to B&E, “There should be a clear policy on land acquisition to ensure this does not become a hindrance in project implementation.”

Every delay is increasing the cost of the projects and also deterring potential investors from participating in the India growth story. This is true generally for India’s infrastructure scenario. McKinsey estimates that the shortfall in achieving infrastructure development targets (of which steel projects form a significant part) in the 11th and 12th five year plan periods could cost India Inc. a whopping $200 billion by 2017, which at $500 billion is nearly 10% of GDP and a huge 40% of the 11th year plan expenditure.

The other – more critical – perspective in this regard is with respect to raw material, particularly iron ore availability. The Steel Minister has called for “proactive action by all Indian steel companies to have a secure raw material base.” In fact, most steel players lament the anomaly that India is importing steel on one hand and exporting iron ore on the other; whereas the onus should be on value addition in exports. India exports over 100 million tonnes of iron ore and imports over 6 million tonnes of steel.

Yet, one could argue that the two businesses have grown separately. When SAIL and Tata Steel came in, they had captive mines. And when Ispat entered the market, they worked on a contract with NMDC. As more Indian companies embarked on building steel capacities, scant focus was given to having captive mines or acquiring iron ore assets. That is why, the iron ore business started primarily as an export business.

But now, as access to iron ore has increasingly begun to define competitiveness and iron ore (being benchmarked on global spot prices) and coking coal price fluctuations are hitting bottomlines, players are increasingly considering it a key issue, with all players looking overseas for assets. Global giants BHP Billiton and Rio Tinto are currently pushing steel makers to accept a 100% hike in iron ore prices, or face the spot market, as demand from China grows faster than expected. Forward iron ore swaps are trading at around $117 a tonne for 2010 on CIF basis (China), versus last year’s $60 FOB. Even by a conservative estimate, prices are expected to rise by at least 40%. Fitch expects that even coking coal prices will be at least 30-50% higher yoy.


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