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Subdued steel prices can keep upside capped for SAIL’s stock

An increase in steel offtake in the fourth quarter has seen Steel Authority of India Ltd (SAIL) report notable revenue growth of 8.6% year-on-year. But that was not enough to hold up its stock as the results fell far short of consensus estimates. SAIL’s stock dipped 1% on Friday after its results were announced post-market hours on Thursday.

The highlight of the results has been better volume growth in Q4. Saleable steel sales totalled 4.133 million tonnes (mt) in the March quarter, increasing 10% over the same period last year. The company also increased its hot metal, crude steel and value-added production in the last quarter, a sign that domestic demand is fairly robust.

However, steel price realizations have dipped in the domestic market, squeezing Ebitda (earnings before interest, tax, depreciation and amortization) margins.

The margins were further hurt on account of the rise in iron ore prices due to a supply disruption in Brazilian and Australian mines. SAIL’s Ebitda margins shrank from 13.8% in Q4 FY18 to 12% in Q4 FY19.

To add to the pain, an increase in coking coal prices added to the net profit fall, which dropped 42.5% in Q4. Interestingly, profit for FY19 increased to ₹2,179 crore. In FY18, SAIL had reported a loss of ₹482 crore.

In FY20, the company’s management has guided a production target of 17mt.

Besides, analysts are also worried about its cash outlay. SAIL has outlined a plan of ₹4,000 crore capex in FY21. “We are concerned on cash commitments: 1) capex of INR40bn in FY20E; 2) INR12bn outflow on new pension scheme; and 3) INR 37bn debt repayment obligation. Besides, INR30bn annual interest cost is expected to constrain cash balance further. These are expected to account for bulk of EBITDA amidst a challenging operating environment besieged by weak prices,” said Edelweiss Securities Ltd in a note to clients on 31 May.

While steel demand is robust in India, analysts reckon that it may not translate into much higher realizations. Much depends on how iron prices pan out in the international markets. But as iron ore supply disruption is likely to be persistent, investors will have to watch steel prices a lot closely, too.

Credits: www.livemint.com

Brexit party plans ‘John Lewis-style’ rescue of British Steel

The Brexit party has announced its first policy beyond leaving the EU: saving British Steel by turning it into a “John Lewis-style” company part-owned by the workers.

The party’s chairman, Richard Tice, unveiled the policy on Tuesday in Scunthorpe, North Lincolnshire, where 5,000 jobs are on the line after privately owned British Steel went into insolvency last month.

He proposed a “strategic national corporation, which will blend the best of private sector expertise and capital; long-term, patient state capital; as well as improving productivity through a John Lewis-style form of shared ownership for the workers”.

The idea seemed a hybrid of Conservative and Labour policy: while the Conservative government looks for a private buyer for British Steel, Jeremy Corbyn wants it to be nationalised.

Tice dismissed warnings from Gareth Stace, the director general of the trade body UK Steel, who said Brexit “will not improve the situation for the steel sector but it has the potential to cause a great deal of damage”.

Stace was an “establishment” figure, Tice claimed. “I’m afraid some of these industry lobby groups are part of the establishment and are simply wrong. What is most important to make British steel is not the tariffs, it’s the cost of business rates, it’s the cost of energy and it’s the emissions trading scheme.”

UK Steel has previously called on the government to tackle industrial electricity prices, which are twice those in France, as well as a reduction in UK business rates. According to Stace, these are “five to 10 times higher than elsewhere in the EU, perversely increasing costs for those that modernise and upgrade”.

Tice was accompanied in Scunthorpe by Simon Boyd, the managing director of Reidsteel, a structural steel company based in Dorset. He said EU regulations meant it was “easier for us to export to Mongolia than France”, drawing tuts of disapproval from the carefully vetted audience, who had each paid £2.50 to attend the press conference.

Boyd, who campaigned against the working time directive, said EU competition rules meant his firm lost a contract in Rotherham to a Portuguese firm, who benefited from significantly lower energy costs in Portugal and then came to Yorkshire and employed eastern European labourers.

Not everyone was convinced by the Brexit party’s proposal. Among those in the audience was Jim Crossman, a former chief engineer of British Steel, who went on to be chief executive of Caparo Merchant Bar (now Liberty Steel Scunthorpe), which makes steel bars.

“I’m a Brexit supporter but I am unsure they can bring this off,” he said. “The big worry I have is that while Rome is burning and the industry is reducing, the skills in the industry will leave because they are unsure if British Steel will survive … I don’t personally think there will be a private buyer who will buy the whole unit, including the blast furnaces, which need a lot of capital investment. They might strip out the better assets.”

The Brexit party polled 47% of the European parliamentary vote in North Lincolnshire, with Labour second (12.5%) and the Conservatives third (11.5%). It is contesting Thursday’s byelection in Peterborough and is beginning to develop a policy platform to fight a general election, should one be called before the UK leaves the EU.

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Steel industry protests extending iron ore mine licences, demand auction

MUMBAI: Steelmakers are pressing the government to auction iron ore mining licences currently held by private miners when they expire in March 2020. Winning iron ore mines via auctions will be a relief for steelmakers, who are forced to import costlier ore in the absence of captive mines.

Over the last week, the Indian Chamber of Commerce (ICC), Associated Chambers of Commerce and Industry of India (Assocham) and the Chattisgarh Sponge Iron Manufacturers’ Association (CSIMA) have written to NITI Aayog and the mines ministry, making a case for mine auctions. Mint has reviewed copies of the letters.

Welspun Steel, Tata Steel BSL (erstwhile Bhushan Steel), Jindal Saw, MESCO Steel, and Jindal Steel and Power (JSPL) are members of Assocham, while Tata Steel, JSPL and Shyam Steels are members of the ICC.

Mint reported on 21 May that production at non-integrated steel companies, which do not have access to captive iron ore resources, will be disrupted in 2020 if auctions are delayed. It will affect companies such as Rashtriya Ispat Nigam Ltd, Essar Steel and JSW Steel, which have inadequate captive iron ore resources and those that are either under stress or have been referred to the National Company Law Tribunal.

A 2017 report by the mines ministry found that licences for 334 mines, out of which 33 working iron ore mines with an annual production capacity of 55 million tonnes (mt), will expire in 2020. Odisha, Karnataka, Jharkhand and Chhattisgarh are India’s ore-rich states.

In its letter to Amitabh Kant, CEO, NITI Aayog, ICC said accepting merchant miners’ request to extend their licence till 2030 would mean huge revenue loss by way of auction premium for the exchequer. A letter from Assocham claimed that in Odisha alone, with 16 working iron ore mines of combined capacity of 53 mt, extending the licence period by 10 years would lead to a presumptive loss of ₹79,500 crore, based on auction premiums paid in the past.

A 2015 amendment to the Mines and Minerals (Development and Regulation) Act, 1957, extended merchant miners’ licences to their mines by five years till 2020. By this time, the mines were expected to be readied for auction, with new environmental and forest clearances in place.

The initiation of the auction process was delayed till the latter half of 2019 because of the Lok Sabha elections. This could further delay timely auction, since the process takes three to six months to complete, leaving the steel industry in limbo. The iron and steel sector has a total fund-based banking credit of ₹2.85 trillion and most companies do not have assured iron ore access.

The dearth of domestic iron ore supply will necessitate an increase in the import of iron ore mix, which costs 50% more than domestic ore. This will potentially lead to an increase in the cost of production, a May report by credit rating agency India Ratings said.

The delays in starting operations were primarily because of the delays in obtaining environmental, wildlife and forest clearances. The G2 resource prospection, the third stage of geological assessment, is a pre-requisite for auction.

The letters from the steel industry to the government suggested that to prevent further delay, existing environmental and forest clearances for operational mines can be extended by three years to the new licensee.

Credits: www.livemint.com

ArcelorMittal moves NCLAT to expedite NCLT hearing on Essar Steel

ArcelorMittal has moved the National Company Law Apellate Tribunal (NCLAT) to expedite the hearing on the auction of Essar Steel. The LN Mittal company, whose bid has got the backing of Essar Steel lenders, is in a race with the Ruias, who made a last minute offer for their insolvent steel company.

The Ahmedabad bench of National Company Law Tribunal (NCLT) is hearing cases, including the one pertaining to the maintainability of the bid given by the Ruia company, Essar Steel Asia Holdings. The NCLT also needs to give its stamp to the Rs 42,000-crore proposal from ArcelorMittal. The bid has been cleared from the bankers and needs approval from the Tribunal.

ALSO READ: ArcelorMittal hits back after Sajjan Jindal supports Ruia’s Essar Steel bid

ArcelorMittal’s move will add pressure on the NCLT, which has already been instructed by the Apellate Tribunal to give a verdict by January 31.

“But all the NCLT said was they will try to give an order by January 31. ArcelorMittal is hoping that this (the latest submission) will expedite the approval of their resolution plan for Essar Steel,” said an executive.

The NCLAT is expected to hear ArcelorMittal’s submission later on Wednesday.

The Ruia family, in a last-minute entry into the race, submitted a bid of Rs 54,000 crore. The NCLT is also hearing cases filed by Essar Steel’s operational creditors, who want their claims to be considered in the bids submitted

JSW Steel set to buy Monnet Ispat for Rs 3,750 crore

In the first resolution of an NPA account on RBI’s first list, JSW SteelNSE -3.17 % is all set to buy debt-ridden Monnet IspatNSE -1.62 % for Rs 3,750 crore, ET Now reported on Friday quoting sources.

Monnet Ispat faces claims of Rs 10,359 crore from financial creditors and Rs 116 crore from operational creditors, the report said.

The company, which is part of the first lot of 12 defaulters referred by the Reserve Bank of India for insolvency proceedings, has a sponge iron unit with a capacity of one lakh tonnes a year.

TATA Steel Buys Bhushan Steel

TATA Steel buys 72% share in Bhushan steel for a whopping INR 35,200 Crores.

Tata Steel has announced its acquisition of Bhushan Steel (BSL) through its wholly-owned subsidiary Bamnipal Steel Ltd (BNPL), completing the resolution of the first case under the Insolvency and Bankruptcy Code (IBC), 2016.

Tata Steel said in a press statement that it has taken a controlling stake of 72.65% in BSL and paid the admitted corporate insolvency costs and employee dues, as required under IBC. Further, settlement of amounts equivalent to Rs35,200 crore towards financial creditors of BSL is being undertaken, and Rs1,200 crore will be paid to the operational creditors of BSL over a period of 12 months, said the statement.

Meanwhile, Neeraj Singhal, former vice-chairman and managing director of Bhushan Steel, has moved the National Company Law Appellate Tribunal (NCLAT) seeking a stay on the takeover by Tata Steel. Mint has learnt that Singhal, a member of the family of the original promoters, also wants to prevent his equity from being transferred to Tata Steel. As of March, the old promoter group owned 43.9% of the equity in publicly-listed BSL.

Tata Steel’s legal team has filed a caveat, a pre-emptive application that the court will not pass an order on this appeal without hearing the company.

This is not the first of unforeseen delays for Tata Steel. The firm has already fended off litigation from Larsen & Toubro Ltd, one of Bhushan’s operational creditors, and BSL’s employees.

Dismissing these cases, on Tuesday the National Company Law Tribunal (NCLT) approved Tata Steel’s takeover of BSL.

The delays in its takeover bid have led to corporate governance issues at the plant, with the senior management hinting earlier to Mint that there might be cases of under-invoicing and contracts being awarded to people known to the erstwhile promoter.

A spokesperson for Tata Steel said that employees of the company have moved into key locations of BSL on Friday, including Khopoli, Dhenkanal and Sahibabad, wresting physical control of plants before NCLAT hears Singhal’s plea on Monday.

The investment in BSL through BNPL has been done through a combination of equity of Rs158.89 crore and an inter-corporate loan of Rs34,973.69 crore. Additionally, Rs100 crore has been paid by BNPL to the financial creditors of BSL to repay old debt.

The acquisition is being financed through a combination of external bridge loan of Rs16,500 crore availed by BNPL, with the remaining Rs18,700 crore coming in the form of equity infusion by Tata Steel in BNPL. The bridge loan availed by BNPL is expected to be replaced by debt raised at BSL over time.

Nominees of BNPL have been appointed on the board of BSL and the existing directors of BSL are deemed to have resigned from its board, according to the terms of the approved resolution plan.

BNPL shall be classified as the “promoter” of BSL, and the existing promoters/promoter group re-classified as public shareholders of BSL, according to the resolution plan approved by NCLT.

ArcelorMittal, SAIL may finally seal Rs 5000-crore JV

KOLKATA: ArcelorMittal on Wednesday said it has agreed to make concessions to Steel Authority of India (SAIL) on technology transfer to iron out contentious issues in their proposed Rs 5,000­crore automotive steel joint venture. The announcement comes a day after steel minister Chaudhary Birender Singh said the global steel major and SAIL are in ‘final stages’ of formalising the deal. The two companies are believed to be close to ironing out key commercial terms to close the deal, including non­compete and exit clauses as well as finalising policy on arbitration, agency reports said, quoting sources. Responding to ET, an ArcelorMittal spokesperson said: “Our discussions with SAIL continue to make progress, with both parties making significant efforts towards reaching a final agreement. Progressing our partnership to a formal joint venture stage remains the objective, but given the confidential nature of this discussion, we will be making no more comments at this time.

When contacted a SAIL official, who did not wish to be named, said: “A joint task force formed to work out the partnership is moving ahead with its job. A feasibility report is now being prepared as part of the preparatory work on the deal”

ArcelorMittal, SAIL may finally seal Rs 5000-crore JV

KOLKATA: ArcelorMittal on Wednesday said it has agreed to make concessions to Steel Authority of India (SAIL) on technology transfer to iron out contentious issues in their proposed Rs 5,000­crore automotive steel joint venture. The announcement comes a day after steel minister Chaudhary Birender Singh said the global steel major and SAIL are in ‘final stages’ of formalising the deal. The two companies are believed to be close to ironing out key commercial terms to close the deal, including non­compete and exit clauses as well as finalising policy on arbitration, agency reports said, quoting sources. Responding to ET, an ArcelorMittal spokesperson said: “Our discussions with SAIL continue to make progress, with both parties making significant efforts towards reaching a final agreement. Progressing our partnership to a formal joint venture stage remains the objective, but given the confidential nature of these discussions we will be making no further comment at this time.” When contacted a SAIL official, who did not wish to be named, said: “A joint task force formed to work out the partnership is moving ahead with its job. A feasibility report is now being prepared as part of the preparatory work on the deal.”

India becomes second largest steel producer

Stainless steel production rose to 3.32 million tons for 2016: ISSF

India overtook Japan to become the second-largest steel producer in the world after China in 2016, according to data released by the International Stainless Steel Forum (ISSF).

India’s stainless steel production rose to 3.32 million tons for 2016 showing an impressive growth of about 9% over 3.0 million tons achieved in 2015, ISSF said at their annual conference in Tokyo, Japan.

“This is a great moment for the Indian stainless steel industry,” KK Pahuja, president, Indian Stainless Steel Development Association (ISSDA) said. “ISSDA urges continuous policy support from the government to take the Indian stainless steel industry to newer heights. ISSDA will continue to work with all stakeholders to promote stainless steel based solutions for sustainability and growth.”

“Several government initiatives like ‘Make in India’, smart cities, focus on improving sanitation & waste management facilities, building new infrastructure are is likely to give a strong push to the stainless-steel industry in future,” Mr. Pahuja added.

Source: The Hindu

Steel industry likely to benefit from GST, rate stands at 18 per cent

KOLKATA: Steel industry is likely to benefit from the new GST rate for steel which has been finalised at 18% ­­also the slab that includes most number of items. With key inputs like coal, iron ore pegged at 5%, which is the lowest slab under GST, steel companies like JSW Steel, JSPL, Tata Steel, SAIL etc., could be looking at lower input costs. Together, with a substantial slash in transport costs due to unified and standard tax rate under GST, this is likely to help steel companies reeling under large debt and also keep steel prices stable. Commenting on it, H Shivramkrishnan, Director, Commercial, Essar Steel said the GST rates are on expected lines. “We expect the requirement of working capital to go up in the immediate future. But going forward, GST will have a beneficial impact on the steel sector and the economy,” he added. On Friday, Tata Steel stock went up 0.53% to Rs 489.40 on BSE, JSW Steel rose 1.12% to close at Rs 193.55. Companies expect a reduction in logistics costs and time under GST. Presently, each time it crosses a state there are number of check post which delay the supply of goods to the customer. Under GST, a unified and standard rate of tax will reduce this cost and delay. In the post GST regime, industry estimates a 40 to 45% saving on time taken in movement of goods. Exclusion of gas from GST purview is a matter of concern especially for gas­based steel and power plants, said Essar Steel. It will also impact a number of smaller secondary sector players too who plan to use gas, a cleaner alternative fuel to produce steel.

 

Source: Economic Times.

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