August, 16 2005
Indian economy looking up
There was skepticism about India's growth prospects as the new financial year began in April. But things have changed dramatically, particularly because of an amazingly good monsoon. Though delayed, it has been a little too generous this season, raising the prospects of good crop even as it caused floods in some parts of the country. What is significant is that the areas that are usually prone to drought have received copious rains this year, improving the prospects of good crop for the next two to three years.
Agriculture seems to have been a drag on the economy in the last year or two after near double-digit growth in 2003-04, which pushed the overall growth of the economy to 8.2%. But though agriculture recorded very low growth of around 1% in 2004-05, GDP growth was quite comfortable at 6.9% on the back of high growth in the previous year because of the buoyant industrial and services sectors, which recorded growth near 10%. With the business confidence index at a 10-year high, riding on the back of strong monsoon, growth prospects can only improve this year.
Both Prime Minister Manmohan Singh and Finance Minister P Chidambaram are confident of achieving at least 7% growth this financial year, and expectations are that it could reach well over 7%. With sales volumes and profits seen rising, there is optimism all around and companies are upbeat about the outlook despite higher oil prices. What is more significant is that inflation is under control - hovering around 4%, notwithstanding upward pressure from crude prices. This has helped the Reserve Bank of India, the country's central bank, to maintain stable interest rates, ensuring growth prospects are not dampened.
The Dun and Bradstreet Business Optimism Index survey conducted recently showed that basic goods makers, service sector companies, consumer durable producers and capital equipment suppliers are the most optimistic on growth. This survey was conducted when the stock market hit record highs following a sharp rise in foreign fund investment, and reflected an optimistic outlook for the economy. India's stock market has continued to soar and surge past 7,700 after breaching the 7,000 mark in June. India Inc anticipates a faster growth rate due to liberal trade pacts with Singapore, lower interest rates, relaxation of FDI (foreign direct investment) caps and improved macroeconomic parameters, besides higher levels of industrial efficiency. Huge FII (foreign institutional investor) inflows and promised deregulation, apart from rosy plans like gas pipelines, have also helped boost the investment climate.
One major indicator for buoyancy in the economy is the upswing in the prices of real estate in major metropolises, which have been pushed up by at least 10-20%. In cities like Delhi and Mumbai, they have gone up by over 40%. Prospects of exports in the current year have also risen. The proportion of companies expecting higher exports is up by 2.9%. Even the outlook on pre-tax profits is bright as the number of firms expecting higher profits has risen by 5.9%.
Revenue collections are good. After the first-quarter figures, the revenue department is confident of exceeding collection targets for customs duties, service taxes and corporate taxes despite lowering of rates as part of the tax reforms in the budget this year. Excise duties as well as income tax collections, too, are expected to be right on target.
With exports recording over 20% growth in the first quarter of this fiscal year, Commerce Minister Kamal Nath has already revised the merchandise exports target from US$88 billion to $92 billion for 2005-06. Service exports, too, are recording unprecedented growth this fiscal year and could cross $50 billion for the first time. FII flows have surged, and so have FDI inflows. In 2004-05, FDI flows recorded a 42% increase, and in the first two months of the current financial year, the inflow registered a growth of 117% as compared to the corresponding period of the previous year.
The key steel sector is looking up. South Korean major Posco has inked a memorandum of understanding (MoU) with the Orissa government for a $12 billion project to set up a 10 million ton capacity steel plant. Non-resident Indian steel tycoon Lakshmi Mittal is also negotiating with the Jharkhand state government for setting up a 10 million ton plant.
The automobile sector is zipping ahead. Most of the major carmakers are in expansion mode. Commercial vehicle manufacturers are also planning big investments. Toyota and Suzuki have planned new plants in addition to the existing ones. Ashok Leyland may also enter the car segment, while Mahindra and Mahindra is coming out with a car in collaboration with Renault. Volkswagen is negotiating with the Andhra Pradesh state government for setting up a plant, while BMW is setting up shop near Chennai.
The quarterly results of most companies, especially IT firms and public sector banks, are extremely encouraging. The country has not had such a good showing in the recent past. Energy appears to be one area of concern, given surging oil prices. But the US visit by Prime Minister Manmohan Singh has opened new vistas of opportunity, with President George Bush recognizing India as a nuclear power and agreeing to lift restrictions and cooperate in the area of civilian nuclear energy. Also, India is moving ahead with the $7.1 billion Iran-Pakistan-India gas pipeline. Besides, there have been rich gas finds in the Krishna-Godavari offshore area. All these augur well for energy security, which is key to the country's economy given that 70% of its oil requirements are met through imports.
But for the recent oil rig fire in Bombay High, which could pose a temporary setback, overall there seem to be positive developments in the energy sector. India is also exploring the possibility of coal gasification and its conversion into oil. The country has one of the largest coal reserves worldwide, but oil conversion has never been attempted due to high costs - a barrel of oil from coal is expected to cost $40. With oil prices surging to around $60 a barrel, coal gasification has now become a viable proposition and talks are on with South Africa, which has developed expertise in this area.
With strong macroeconomic fundamentals, the prospects look genuinely good for the economy for now. But it could also turn out to be just a short-term boom unless the government makes serious efforts to push reforms.
Infrastructure is still a major constraint. The government needs to speed up modernization of major airports, ports, highways and railways, which will require huge investments and political will. Over $150 billion of FDI is required in the infrastructure sector in the next 5-10 years. The power sector is yet another area where huge investments are required. There have been some developments in this area of late with power reforms, and investments are pouring in. But most private sector investments are still only on paper. The resolution of the Dabhol power project augurs well as this could encourage private sector and foreign investments in the power sector. But more importantly, the state electricity boards need to be reformed, without which private investment flow into the sector could only be minimal.
GM plans to purchase more auto supplies from India
General Motors Corp is planning to purchase more material in Asia and trim capacity in North America as it struggles to contain the huge financial losses in its basic automotive business. The plan includes increasing its purchases from suppliers in India from roughly 150 mln usd currently to more than 1 bln usd by the end of 2008, GM spokesman Tom Wickham said in an interview.
GM buys roughly 85 bln usd of automotive components, steel and other material to feed its automotive operations every year. It hopes to reduce those costs by buying more components from suppliers operating from Eastern Europe, India, China and other parts of Asia where costs as significantly lower than in North America or Western Europe.
A recent study by the McKinsey Quarterly estimated that carmakers could cut their annual bill for auto parts by 25 pct by sourcing more components to China and India. 'Shifting to auto parts suppliers in China and India won't be easy and won't happen overnight,' the report said. 'Sourcing car parts isn't as simple as buying shirts or toys. Car models are more complex with a lifespan of five to seven years so manufacturers must develop long-term relationships with suppliers and enter into contracts that are difficult and expensive to unravel.'
Governments in both China and India, though, are willing to help in the transition and the local demand for auto parts is growing in both countries.
Velagapudi Steels Ltd plans backward integration
Velagapudi Steels Ltd (VSL), the Hyderabad-based manufacturer of steel bars for construction activities, has chalked out an expansion and backward integration programme involving an investment of around Rs 15 crore.
VSL has set up a 60,000 tonnes per annum steel bars facility at Visakhapatnam at a capital outlay of Rs 20 crore and proposes to expand its production capacity to one lakh tpa with an investment of around Rs 3 crore on additional equipment. It has also decided to go in for backward integration at an investment of Rs 12 crore to set up its own 1.25-lakh tpa billets plant billets project.
VSL is using QST based on Thermex technology under licence from the German major - Hennigsdorfer Stahl Engineering for producing Reinforcement bars.
Tata Steel eyeing Africa coal mines
Tata Steel, which has envisioned raising its capacity from 4 million tonnes a year now to 15 million tonnes by 2010, has a daunting challenge to secure coal a key raw material. For producing 15 mt of steel, Tata Steel will need about 11 mt of coal. According to A.D. Baijal, VP (Raw materials), at least 7 mt of coal will need to be sourced from outside the country.
Last month, the company signed agreement to buy a 5 per cent interest in the Carborough Downs Coal Project located in Queensland, Australia. The agreement gives Tata Steel rights to buy 20 per cent of the production from the project. Baijal says more such agreements were in the offing. "We are looking at 4-5 tie-ups. There are opportunities in Australia and Africa,"
Meanwhile, the company is also scouting for new technologies for coal beneficiation to improve the quality of coal from its captive mines. Indian coal is high in ash content, sometimes as high as 40 per cent. Tata Steel has four beneficiation plants. One more mine is to be opened shortly and alongside, a coal washery would also be set up. At present, Tata Steel is able to bring down the ash content of its domestic coal to 14 per cent. Around 60 per cent of the company's coal consumption comes from domestic sources.
"It is not so much as the number of beneficiation plants as the technology used that is important," Baijal said. He added that the company's R&D would analyse the coal and depending upon its characteristics, would source the right technology. Baijal said that in the next few months, a new technology for reducing the ash content of coal would be tied up for.
CIL seeks labor law changes
Coal India Ltd (CIL), the country's largest corporate employer with 4,68,000 workers, has urged the Prime Minister, Mr Manmohan Singh to bring about changes in labor laws to facilitate rationalization of its huge workforce, besides demanding more financial autonomy. CIL pointed out that three of its subsidiaries Eastern Coalfields Ltd (ECL), Central Coalfields Ltd (CCL) and Bharat Coking Coal Ltd (BCCL) had a bloated workforce of 67,514, of which 44,635 were employed in 67 highly loss-making mines. It pointed out that there were 12,963 workers, more than the numbers needed, in the underground mines along with 8,015 manual wagon loaders and nearly 30,000 surplus female staff.
CIL, which produces 87 per cent of India's coal needs, contended that its inherent strengths were neutralized owing to difficulty in redeployment of surplus manpower coupled with factors such as high percentage of conventional mines, lack of mechanization, limitation of infrastructure and inadequate coal reserves.
CIL suggested that 67 unviable mines of BCCL and ECL be closed down as the companies were sustaining average financial loss of Rs 5,161 per tonne and Government evolve an acceptable code of discipline and bringing in legislative changes to improve the work culture, saying late starting and early end of shifts, and relaxed work approach were wreaking havoc on the production process. It also stressed on the need to check militant attitude of trade unions through legislative changes and demanded that it be allowed to run professionally.
Global SS price weakening hits Salem Steel exports
WEAKENING of global stainless steel prices has affected the exports of Salem Steel Plant, the specialty steel producer of SAIL. Unlike the four other integrated steel plants of SAIL, Salem Steel Plant has been a major exporter of specialty and stainless steel. In fact, this unit's turnaround was based on the good returns from foreign trade.
For 2005-06, the management of Salem Steel had drawn up elaborate plans to further boost its exports. However, the poor global stainless steel prices have upset the plans. According to Mr M. Roy, Executive Director of Salem Steel Plant, exports of this unit had virtually stopped because stainless steel prices had dropped to abysmally low levels. He agreed that the fall in the stainless steel prices is actually a reflection in the overall weakening of the global steel prices. He, however, added that mild steel prices had improved recently but a similar impact was yet to be seen with regard to stainless steel prices.
During 2004-05, Salem Steel Plant exported 67,000 tonnes of stainless steel against the domestic sales of 27,000 tonnes to 19 countries, which included South Korea, Taiwan, Vietnam, Malaysia, US, Egypt, Turkey, Bangladesh and others.
Steel experts had forecast that stainless steel prices in the global market would continue to remain dull. According to them, a combination of several factors including high inventories and summer holidays in northern hemisphere would keep the prices down. Many producers have announced output cuts in an effort to bring the market back into balance. This has been made necessary by the excessive rate of production since mid 2004. The resulting over-supply has caused fall in stainless prices. In Europe, ThyssenKrupp Stainless, Ugine & ALZ and Outokumpu have reduced production. Similarly, in Asia stainless mills in Taiwan, Korea and Japan are reducing their operating rates, citing the need to bring down stock levels. Even Chinese cold rolled stainless producers are reining back their production.
BHPV bags Rs 278-cr orders
Bharat Heavy Plate and Vessels Ltd here has work orders worth Rs 278 crores and is shortly expecting orders worth Rs 300 crores, according to Mr I.S.S.S. Ganesh, General Manager (Finance).
He was speaking at the Independence Day celebrations in the factory here on Monday. He said the company would strive to execute the orders on time and gain customer confidence. He urged the employees to work hard towards that end.
Tata Steel plans to be a 25 mt company by 2015
Tata Steel plans to take production to 15 million tones by 2010 and to 25 million tones by 2015, its managing director B Muthuraman said.
"We are a 7 million tonne company, with 5 million tones at Jamshedpur and 2 million tonnes overseas. The expansion of Jamshedpur to 7 million tonnes is ongoing and will be completed 2008," said Mr Muthuraman. "Thereafter, the Jamshedpur Works will be expanded to 10 million tonnes. We have asked the state government to provide us with adequate iron ore reserves for this 10 million tonnes and I am sure it will be forthcoming," he said.
The company, he said is eyeing a second overseas acquisition in South-east Asia during the course of this year and will continue to look at further acquisitions.
He called upon state and central governments to exercise caution while taking decisions on foreign investment to ensure that mineral reserves of India, specially iron ore, were not exported out of India. "Our projects in Kalinganagar, Orissa and Bastar in Chhatisgarh are progressing satisfactorily and will be on schedule. We are receiving very good support from the governments of Jharkhand, Orissa and Chhatisgarh in the endeavours," he said.
The projects in Iran and Bangladesh were in their nascent stage and we have the confidence and capability to execute these projects on schedule, he said.
Rs 43,000 crore investment proposals for Chhattisgarh
Chhattisgarh has attracted investment proposals worth Rs 43,000 crore in the last one year, Chief Minister Dr Raman Singh said on Monday. "After a new strategy adopted for value addition of natural resources of the state, Chhattisgarh has attracted Rs 43,000 crore worth of investment proposals in various sectors in the last one year,"
Various reports of Government of India and media surveys have stated that the state has topped in the country in providing best investment environment and currently MNCs like Lafarge, De Beers, Rio Tinto, BHP Biliton are working here while companies like IFFCO, Tata Steel and Essar have signed MoUs for projects in tribal areas of the state, he said.
China's foreign direct investment drops
Foreign direct investment in China fell 3.4 percent to $33.1 billion in the first seven months of this year compared with the same period last year, the Ministry of Commerce reported Monday, but the pledged foreign direct investment in January-July rose 19.2 percent from a year earlier, to $98.6 billion.
After years of rapid growth, increase in foreign investment in China has moderated, prompting a debate over whether the slowdown might hurt economic growth given the country's heavy reliance on investment from abroad to build up its export-oriented industries. But promised investment remains strong, and with the economy growing at a rate of more than 9 percent for the past two years, the issue has drawn little attention.
China attracted $60.6 billion in foreign investment in 2004, up 13 percent from 2003, second only to the United States. The top sources of foreign investment were Hong Kong, Japan, South Korea, the United States, Taiwan, Singapore and Germany.
Malaysian Southern Steel 2Q net profit falls 98%
Southern Steel Bhds net profit for the second quarter ended June 30, 2005 fell 98.2% to RM553,000 from RM30.82 million in the corresponding period last year as a result of higher material costs and lower selling prices.
The group's revenue in the quarter, boosted by higher sales volume, rose 18.3% to RM668.4 million from last year's RM565.2 million. For the first six months of the financial year ending Dec 31, 2005, net profit dropped 92.2% to RM4.85 million from RM61.78 million last year, despite a 12.2% year-on-year increase in revenue to RM1.25 billion from RM1.12 billion last year.
The market is expected to remain sluggish due to reduced activities in the local construction sector, which has recently been dependent on private residential projects and the government announced projects worth RM2.4 billion would only materialize early next year a company spokesman said.
The price of domestic hot-rolled coil has continued to increase as the international price dropped. Current domestic price is now more than 50% higher than international price, it said. Consequently, this has put tremendous pressure on one of our subsidiaries, which is dependent on local supply of hot-rolled coil, it said.
Southern Steel said there was some positive price movement in steel products in the international scene but added that the quantum of price increase had been modest. The group's performance is not expected to improve until the fourth quarter of the financial year, it said.
Anshan & Benxi Steel merge to rival Baosteel
China's second-biggest steelmaker, Anshan Iron and Steel Group has merged with smaller competitor Benxi Iron and Steel Group, creating a rival for the country's No. 1 steelmaker, Baosteel. The new company, to be called Anben Iron & Steel Group, was established on Friday. Both Anshan and Benxi, China's fifth-largest steelmaker, are state-owned enterprises based in the northeastern province of Liaoning. Anben Iron & Steel will have an annual steelmaking capacity of more than 20 million tons, compared with the 21.4 million tons of steel produced in 2004 by Baosteel.
The merger, which was called "a joint restructuring," is in keeping with China's policy of consolidating its many smaller steelmakers into larger, more competitive industrial groups. But it is taking the form of a cooperation agreement and does not involve the exchange of any equity. The aim is to build a giant enterprise group with international competitiveness based on the principles of resources sharing, complementary advantage and mutual benefits.
Xstrata Buys $1.7 Billion Stake in Falconbridge
Xstrata Plc based in Zug Switzerland, the world's biggest exporter of coal used in power plants, bought 19.9 percent of Toronto based Falconbridge Ltd. world's No. 3 nickel and zinc producer and No. 8 copper producer.
from Brascan Corp. for $1.7 billion to take advantage of surging metals prices. The transaction is the second-biggest in metals this year after BHP's WMC acquisition.
The Swiss miner, the biggest producer of copper from Australian mines, had already sought to expand in metals. Its bid for Australian copper and nickel miner WMC Resources Ltd. was trumped in March by a $7.2 billion offer from BHP Billiton, the world's No. 1 mining company.
Xstrata will pay Brascan in cash and $375 million of convertible bonds, with a 12-year term and a coupon of 4 percent. The bonds will be convertible into a total of 12.1 million new Xstrata shares, or about 1.9 percent of the company. Xstrata will also use a new credit line provided by Deutsche Bank AG and JP Morgan Chase & Co. to finance the acquisition. Should Xstrata make an offer to acquire the majority of Falconbridge within nine months at more than C$28 a share, it will pay Brascan the difference on the 19.9 percent stake.
Falconbridge holds stakes in Antamina, Peru's largest copper mine, and Collahuasi, the world's fourth-largest copper mine, in northern Chile. It is also the sole owner of Altonorte, the largest copper smelter owned by a foreign miner in Chile. The company also owns nickel plants in Canada, Norway and the Dominican Republic, and the Brunswick zinc mine in Canada. It makes aluminum in the U.S. and mines for bauxite, the raw material used to make aluminum metal, in Jamaica.
While Xstrata is based in Switzerland, its main stock listing is in London. Three-quarters of its 24,000 workers are at mines in Australia and South Africa. Xstrata is 40 percent-owned by commodity trader Glencore International AG, Switzerland's largest company by sales.
Brascan is a Canadian investment company that controls Manhattan's World Financial Center. Toronto-based Brascan's strategy is to sell investments in resource companies and invest the proceeds in property, utilities and timberland management
Bayou Steel announces strong results for quarter
Bayou Steel Corporation which emerged from bankruptcy on February 18, 2004, reported its financial results for the third quarter ending June 30, 2005 The Company reported net income of $5.2 million
Sales for the third quarter of fiscal 2005 were $68.4 million while sales for the prior year comparable quarter were $59.3 million. The increase in sales was due to a 12% increase in shipments to 133,000 tons and to an $11 per ton increase in the selling price to $507 per ton. Shipments increased as customers appear to have finally reduced their inventories accumulated last year as customers had increased inventories in advance of an anticipated rapid rise in selling prices.
Jerry Pitts, President and CEO of the Company, commented "Bayou Steel continues to perform at a high level of profitability. Shipments during the quarter increased as our customers worked through their higher than normal inventories. We still have opportunities for improvement in operations and our team is focused on achieving greater improvements in all facets of the business in the near future."
Looking forward, Mr Pitts concluded, "Backlog for our products has grown over the past month and is at a solid level. The outlook for our products appears to be better for the second half of calendar 2005. Our metal margin, the difference between our selling prices and scrap raw material cost, remains near record levels although we expect the metal margin to be lower than the third fiscal quarter. Scrap continues to be volatile and is moving sharply upward. A competitor has recently announced a $45 per ton price increase effective September 1, 2005."
Bayou Steel Corporation manufactures light structural and merchant bar products in LaPlace, Louisiana and Harriman, Tennessee. The Company also operates three stocking locations along the inland waterway system near Pittsburgh, Chicago, and Tulsa.
Malaysia's Leader Steel 2Q Net MYR1.87M
Malaysias Leader Steel Holdings Bhd has announced financial results for Q2 with a revenue of MYR51 million and net profit of MYR 1.8 millions.
The Leader Steel Group of companies started in 1987 and has emerged as the leading manufacturer and exporter of precision cold rolling / forming flat, angle and sectional bars for both local and export markets.
The LSH Group has built up an extensive distribution network of long established customers of more than 350 local stockists. The Groups operations are based in Penang and Sarawak. Domestically, LSHs products are sold all over Peninsular and East Malaysia. Internationally, the Group's products are sold to countries such as Singapore, Vietnam, Mauritius, Philippines and etc.
Ispats GSHL takes over top Bulgarian Kremikovtzi
A unit of Indian steelmaker Ispat Industries Global Steel Holdings took over Bulgaria's largest steel mill, Kremikovtzi, as its representatives were voted to the supervisory board, signaling their acquisition of 71 percent stake previously held by Bulgarian Finmetals Holding. GSHL is expected to have paid around $100 millionfor Finmetals' shares and would invest another $300 million into the Bulgarian firm over three years.
GSHL has been in talks to acquire Kremikovtzi since last year and has sat on its management board since August. In April, Ispat signed a preliminary deal, worth an estimated $400 million in cash and future investment, to take over Kremikovtzi. Global Steel Holdings' takeover has been fraught with complications tied to that sell off and issues related to Bulgaria's struggle to meet stricter environmental restrictions required by the European Union, which the country hopes to join in 2007.
Kremikovtzi, a former debt-ridden state-owned steel mill, was originally privatised for a token $1 in 1999. Kremikovtzi's output has remained stable since its privatisation, but it has slashed its debt in half to 227 million levs ($144.9 million). Its output declined last year to 1.43 million tonnes of raw steel, down from 1.66 million a year earlier, and a further drop is expected in 2005 due to a planned six-month furnace overhaul.
Bulgaria's government still owns 25 percent of Kremikovtzi, and the remaining 4 per cent is in free float that can be traded on Sofia's highly illiquid stock market.
China Maanshan 1H net profit falls by 8.1%
Chinese steel producer Maanshan Iron & Steel Co. (0323.HK) said Monday its first-half net profit fell 8.1% from the same period last year to CNY2.13 billion.
Net profit for the first six months of 2004 totaled CNY2.32 billion and revenue rose to CNY16.66 billion from CNY12.81 billion.
Maanshan's products include sections, wire rods, medium and thick plates, and train wheels and tires.
Iron Ore to Stay High, Canaccord Says
Iron ore prices may stay near a record high through 2006 as growing demand for the raw material from Chinese steelmakers keeps usage ahead of production, said Canaccord Capital Inc., Canada's largest independent brokerage.
Expanding steel production will increase demand for iron ore shipments by 8.5 percent to 753 million metric tons in 2006, said Damien Hackett, Gary Lampard and David Dattels in a report. Iron ore contract prices, traditionally negotiated over the Japanese fiscal year starting April 1, this year surged 71.5 percent to the equivalent of about $40 a ton.
Iron ore prices have risen for three straight years as Chinese steel output doubled since 2001. Brazil's Cia. Vale do Rio Doce, Australia's BHP Billiton and Rio Tinto Group, which combined meet three quarters of iron ore demand, are spending $8.5 billion raising output. Most of the new capacity isn't due to start up until 2006 to 2009.
The global market for iron will remain tight,'' the analysts said in the report dated Aug. 11. Prices will drop 10 percent in 2006, according to Canaccord. Further declines of 25 percent in 2007, 12.5 percent in 2008 and 12.5 percent the following year still won't return prices to their 2003 level, the analysts added.
Global iron ore exports will increase 9 percent this year to 691 million tons, lagging behind demand by 3 million tons. The deficit will grow next year to 8 million tons. By the end of this decade, we see a potential market gap of some 30 million tons a year for a major new supplier in the iron ore market,'' the analysts said.
Canaccord is less bullish on iron ore than ABN Amro Holding NV and Merrill Lynch & Co. which forecast prices will rise as much as 10 percent in the next fiscal year. Merrill on July 1 revised its prediction of a 20 percent decline made in February to a 5 percent gain.
UBS AG analysts Glyn Lawcock and Fleur Grose this month said prices may stay near a record. The Sydney-based analysts previously said iron ore would drop 20 percent from April 1, 2006. The shortfall in iron ore production my last until 2010, Credit Suisse analyst Peter O'Connor said in June, citing Vale.
Melbourne-based BHP, the world's third-largest iron-ore exporter, told analysts in June that demand for the commodity may outstrip supply until 2008 and 2009. Rio Tinto, the No. 2 producer, this month said ``tight market conditions,'' for steel raw materials are likely to stay in 2006, driven by Chinese demand.
Nuclear leak at Daimler Chrysler foundry
Federal officials are investigating how a damaged nuclear gauge released low levels of radiation at a Daimler Chrysler AG foundry in Indiana, where several workers were exposed to low levels of radiation July 29 when a 4-inch cylinder overheated causing part of a lead shield around the radioactive cesium core to melt and shift.
The cesium was encased in a double-walled steel capsule and none was released. Still, some of the radiation escaped toward a second-level steel floor, Strasma said.
Workers in the plant were not at risk, and operations continued normally. But several workers who examined the gauge after the malfunction may have been exposed to low levels of radiation. The levels would not have been high enough to cause health problems, officials said.
DaimlerChrysler spokesman Ed Saenz said the company is unsure how the gauge overheated. "We have to complete our own investigation," Saenz said. "But the gauge shouldn't have gotten hot under regular conditions.
OneSteel names BHP Billiton as sellers for their Iron Ore
OneSteel Ltd's former parent company BHP Billiton Ltd will become the steel maker's marketing agent for the sale of extra iron ore and pellets from its Project Magnet in South Australia. OneSteel chief executive Geoff Plummer said the five year contract would see BHP Billiton marketing the extra three million tonnes of hematite ore and 220,000 tonnes of iron ore pellets it intended to sell from Project Magnet each year.
"We are excited to have BHP Billiton as our marketing partner and under the agreement the plan is to create, promote and develop a distinctive OneSteel iron ore product brand," he said. "BHP Billiton will be providing a wide range of agency and marketing services under the agreement, including the management of freight associated with sales secured by them."
The agreement covers all markets apart from Australia and New Zealand.
Project Magnet's development saw OneSteel's Whyalla operation in South Australia converted to allow the plant to use magnetite ore, extending its life as hematite ore from local mines began to run out.
Mittal Steel SA pact with parent Mittal Steel under fire from SARS
Mittal Steel SA looks increasingly unlikely to go through with a controversial plan to renew its business assistance agreement with mother company Mittal Steel. No progress appears to have been made in the eight months since the expiry of the first deal. The steel maker has been silent on the subject since then. Were not working actively on anything as yet, said Mittal Steel SA CEO Davinder Chugh after the release of the groups interim results last week.
The South African Revenue Service (SARS) recently challenged the tax deductibility of payments of R1.34bn the local steel maker made to the global Mittal Steel group under their first business assistance agreement. SARSs challenge may mean Mittal Steel SA may have to pay back about R400m to SARS.
Mittal Steel SA said last week that it would by months end lodge an official objection to SARS intention to disallow the deduction of the payment.
Several shareholders were outraged at the proposed renewal of the assistance agreement last year. They said the global Mittal group had become a major shareholder in Mittal Steel SA since the first agreement, and should now assist its South African subsidiary as a matter of course, instead of being paid for it.
The local steel maker argues that the global Mittal group has developed technologies and processes at high cost. It says the global group should be rewarded for imparting these benefits to the local operations and therefore to minority shareholders.
Mitsubishis CoilPlus acquires Rafferty-Brown
The Rafferty-Brown Steel Co. Inc. acquired during May by Coilplus Holdings America and renamed CoilPlus Connecticut Inc. extends their reach to a key market in North Carolina. The Rafferty-Brown operations specialize in supplying flat-rolled sheet and strip steels. In addition to slitting and rolling, the Rafferty-Brown plants also offer "traverse winding," in which metal strip is wound directly and continuously onto large spools, instead of winding it into individual rolls.
Founded in 1945 in East Longmeadow, Mass., just outside Springfield, Rafferty-Brown established a Waterbury operation in 1962 on South Leonard Street, according to Republican-American archives. Three years later, the company broke ground in 1965 on a 22,500-square-foot Huntingdon Avenue plant that now measures more than 82,000 square feet. The company was bought in 1974 by Hille & Mueller Inc., then of West Germany, according to Republican-American archives. Rafferty-Brown established its North Carolina plant in the mid-1980s and closed its Massachusetts plant around the same time. Hille & Mueller has since become part of Corus.
Based in New York, CoilPlus now operates 12 plants to cut, slit and otherwise processes a variety of steels to customers specifications for uses in multiple markets. Established in 1989, CoilPlus is a subsidiary of Illinois-based Metal One Holdings America Inc., a joint venture between Mitsubishi Corp. subsidiary Mitsubishi International Corp. and Sojitz Corp. of America.
PT Krakatau shortlists SMS Demag POSCO Samsung
Germany's SMS Demag AG and a consortium of South Korea's Posco Engineering & Construction and Samsung Group have passed the preliminary bidding process to build a $500 million steel plant for Indonesia's state-run steel maker PT Krakatau Steel.
Amir Sambodo, Krakatau Steel's chief commissioner said that that the companies will compete in the final bidding process. Krakatau Steel will award the winner with the engineering, procurement and construction contract, Amir adds. The bid winner will also provide financing for the project in the form of export credit.
The planned project will boost the production of Krakatau Steel's hot rolled coil steel to 3.4 million metric tons a year from one million currently. The plant's output will be mostly to meet local demand.
Macquarie and Smith Barney analyze steel market
Ongoing uncertainty and prices moving in different directions in different markets is the likely outlook for the global steel industry over the next six months if the industry assessments of Macquarie and Smith Barney Citigroup prove correct. Macquaries sector review focused on the US and European markets, where prices have enjoyed a recent rally.
The broker notes since the start of August hot-rolled coil (HRC) prices have bounced off lows of US$420-450/short tonne to hit US$480/short tonne, while European hot-rolled prices have enjoyed similar gains. In Macquaries view this rally could run for several months as market dynamics have changed, leading to buyers re-entering the market in an attempt to lock in lower prices. The trigger was the announcement by some US smelters of a plan to implement a US$60/short tonne price rise from October 1st as a steel scrap surcharge.
The broker notes there were other factors behind the price rally though, including production cuts impacting on supply, a rally in steel scrap prices from an oversold position and a fall in Chinese exports from their peak in March. Additionally, the broker notes US steel end-users are reviving, with the auto industry in particular announcing production increases. This has occurred at the same time as US steel buyers have completed their de-stocking and so have begun bargain hunting.
In the brokers view, this combination of factors, especially if combined with a 4Q global economic recovery as suggested by economic data, could see almost panic buying emerge, especially if scrap supplies run short. The broker does point out though any increase in prices is likely to be met quickly by higher production in both Europe and the US and additional exports from China.
Despite this, the broker suggests prices could hold at US$500/t for the next six months or so as Chinas rate of production growth has started to slow.
The broker notes recent production cuts are starting to impact, as while July production of 29.2mt is up 28.6% year-on-year and year-to-date production of 193.8mt is up 28.1% year-on-year, the annualised production rate of 344mt is down slightly from May, when it was 359mt.
While the outlook in the US and Europe is becoming more positive, SB Citigroup points out the data coming out of China remains negative.
The broker notes oversupply began to impact the Chinese market in April and has continued to be a problem, reflected in pricing in long and flat product markets.
As the broker points out, despite recent increases prices for many steel products remain about 20% below their peak in the March quarter, with the oversupply situation expected to curtail any significant rally. While falling prices have caused production to decline, the decline hasnt been fast enough to eliminate the threat of backwardation in the market.
The broker notes that a situation where the price of raw materials is higher than the price of the end product is already close to occurring with the price of cold rolled coil (CRC) currently on par with the galvanised sheet price. This would suggest current prices are not sustainable as ultimately supply and demand will determine the steel price, with oversupply very much the dominant pricing factor currently in the brokers view. This oversupply is not uniform across the sector though, the broker noting prices for high and low end products are currently moving in opposite directions.
NikkoCitigroup, the brokers Japanese affiliate, suggests the price outlook for higher quality products remains favourable, as despite production capacity continuing to increase it remains below demand. As a result, the broker suggests higher long-term contract prices in this end of the market in 2006, while prices for commodity products are likely to fall.
Fitch rates JSC Russian Railways "BBB"
Fitch Ratings, the international rating agency, has today assigned Joint Stock Company Russian Railways ratings of Senior Unsecured 'BBB' and Short-term 'F3' ratings. The agency has also assigned RZD Senior Unsecured local currency 'BBB' and Short-term local currency 'F3' ratings and a National Senior Unsecured 'AAA(rus)' rating. All the rating Outlooks are Stable. The Russian Federation is rated Long-term foreign and local currency 'BBB' with a Stable Outlook. RZD is Russia's monopoly railway company.
The ratings reflect RZD's close connections with the Russian Federation and the group's, sustainable, profitable stand-alone financial profile. The close connections with the state result from the government's 100% ownership of RZD and a requirement, under statute, that the core infrastructure operations should remain under government ownership. The strategic significance of rail infrastructure to the country's economy given its vast terrain and the importance of oil, and the government representation on RZD's board, which approves its budgets, future capital expenditure and thereby its revenue requirements, also contribute to the close links.
Despite plans for ongoing railway reform, and it is questionable what incentives RZD has to encourage this process, the core infrastructure business is expected to remain with RZD. Currently, the provision of rolling stock is open to competition, thus remuneration 'at risk' represents an average 15% of freight tariffs. Nevertheless, RZD expects to remain an active participant in the provision of rolling stock. Subsequent phases of rail reform include RZD devolving its repair and maintenance activities, the provision of locomotives and possibly separating the unprofitable passenger services.
The group's freight activities that transport various commodities including oil, coal and ore, are profitable, whereas the passenger activities, which are mainly long-distance and commuter services, make an operating loss.
China's coal stockpile continues to increase
China's coal stockpile reached 125 million tons in the first seven months this year, up 10 million tons from the previous month and 21.49 million tons from the beginning of the year, according to the Coal Transport and Sales Association.
The current coal stockpile equals 15 to 18 days of consumption, a reasonable level, said Monday's China Securities Journal. Due to the rising stockpile, the price of coal began to fall slightly, it said.
In the first seven months, China's coal production increased by 8.8 percent year on year to 1,119 million tons, and coal sales grew by 10.2 percent to 1,070 million tons, figures from the Coal Transport and Sales Association show.
The stable growth of coal production is related to the adequate coal stockpile, the newspaper said, predicting the coal price would continue to drop.
China says 693 miners dead or missing in six weeks
Accidents at Chinese coal mines, the most dangerous in the world, have left nearly 700 workers dead or missing in just the past six weeks, the State Administration of Work Safety was quoted on Monday as saying. The grim statistics came out as 122 miners remained trapped and presumed drowned in a mine in southern Guangdong province that flooded more than a week ago.
"Since the start of July, more than 218 deadly accidents have struck China's coal mining industry, killing or leaving missing 693 people," the Chinese news Web site www.sina.com.cn said, citing an administration report.
That toll was 286 lives, or 70 percent, higher than in the same period of last year, it said.
Many Chinese mines ignore safety regulations to meet a growing demand for coal, which the country relies on for more two-thirds of its huge energy consumption. China has pledged some 3 billion yuan ($370 million) to improve safety standards at mines, but been unable to stop the tide of accidents, which killed 2,700 people in the first half of 2005 alone.
Arch Coal Announces Organizational Changes
Arch Coal, Inc. today announced that David N. Warnecke has been named vice president of marketing and trading for the company, effective immediately. Warnecke will report to John W. Eaves, Arch's executive vice president and chief operating officer. Dave will lead the marketing and trading efforts across the entire breadth of Arch's national and international market area.
In May 2005, Warnecke was named president of Arch Coal Sales, Arch's sales and marketing subsidiary, and he will continue to hold that position. Prior to that time, Warnecke had served as executive vice president of sales and trading for Arch Coal Sales since 2003. He also has held the positions of president of Arch Transportation and mine manager for Arch's former Pikeville, Kentucky, operation during his more than 20 years with the company. In addition, Warnecke served as manager of crude oil trading for Clark Oil from 1992-1995. A native of southern Illinois, Warnecke holds a B.S. in Accounting from McKendree College in Lebanon, Illinois.
In other developments, Deck S. Slone also has been named to the company's senior officer team and will report directly to Steven F. Leer, Arch's president and chief executive officer. Slone is vice president of investor relations and public affairs, a position he has held since 2001. In this capacity, Slone has responsibility for the company's investor relations and corporate communications functions, and also is engaged in Arch's government affairs efforts. In addition, he serves on Arch's technology committee, which has responsibility for assessing and selecting new investment and partnership opportunities in the energy-related technology arena.
A native of Ashland, Kentucky, Slone holds a B.A. from Vanderbilt University and an M.B.A. from Washington University in Saint Louis. He joined Arch Coal in 1997.
St. Louis-based Arch Coal is the nation's second largest coal producer and mines low-sulfur coal exclusively. Through its subsidiary operations in West Virginia, Kentucky, Virginia, Wyoming, Colorado and Utah, Arch provides the fuel for approximately 7 percent of the electricity generated in the United States.
Steelworkers fight to protect pensions and jobs at Stelco
The presidents of five Steelworker local unions at Stelco Inc including Hamilton Chapter of the Steelworkers Organization of Active Retirees (SOAR), and United Steelworkers' Ontario/Atlantic and Canadian National Directors today reaffirmed their strong commitment to fight for pensions and jobs for all Steelworkers and Steelworker retirees at Stelco.
The union leaders emphasized their responsibility to do everything they
can to secure the pensions and the future of Steelworkers and pensioners. They refuse to remain silent when faced with a company plan that sets up a future insolvency and only provides security for financial speculators.
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Pine Valley Announces First Quarter Results
Canadian Pine Valley Mining Corporation announces its results for the three month period ended June 30, 2005.
Revenues from coal sales for the quarter ended June 30, 2005 were $13.474 million, representing 180,307 tonnes of pulverized coal injection ("PCI") metallurgical coal product at an average price of $74.73 (US$60.74) per tonne.
The Company produced 206,267 tonnes of PCI product at a cash cost of $61.74 per tonne. The Company's cost of operations increased as a result of additional fuel surcharges and higher than anticipated strip ratios for mining activities in May.
Operating profit for the quarter was $0.45 million and positive cash flows of $0.981 million were realized from mining activities. The net loss for the quarter was $1.814 million.
Australian OneSteel profit rises 3.6%
Sydney based OneSteel Ltd., Australia's second- biggest steelmaker, said full-year profit rose 3.6 percent, helped by higher prices.
Net income rose to A$132.5 million ($102 million) for the 12 months ended June 30, compared with A$127.9 million last year.
OneSteel is benefiting from growth in construction in Australia, which accounts for almost all of its revenue, as it builds mining projects for BHP Billiton and Newcrest Mining Ltd.
Rival Smorgon Steel Group Ltd. said it was able to raise prices last month as demand from builders remain strong.
Chinese General Steel reports net up by 586%
General Steel Holdings, Inc, a leading manufacturer of high quality hot-rolled steel sheets primarily for use in tractors, agricultural vehicles and other specialty vehicles, today reported results for the second quarter ended June 30, 2005. Revenue for the quarter was $25.3 million, a 25% increase over revenue of $20.2 million in the second quarter of 2004. Gross profit for the second quarter 2005 was $3.8 million, an increase of 276% from $1.0 million in the second quarter 2004. Net income in second quarter 2005 was $1,266,027 compared to net income of $184,454 in the second quarter of 2004.
Revenue for the six months ended June 30, 2005 was $46 million compared to $34.5 million for the same period in 2004, representing a 33% increase. Gross profit for the six months 2005 was $5.7 million, an increase of 170% compared with $2.1 million for the same period last year. Net income was $1,572,470 for the six months of 2005, a 364% leap, compared with $338,687 net income in the same period last year.
The primary reason for the increase in revenue was the increasing demand for cold rolled metal sheets, which boosted the price of General Steel's products. The increase in gross profit was mainly due to the increase in both sales volume and selling price outpacing the increase in raw materials price.
In June, General Steel announced that due to growing market demand, its 70% owned subsidiary, Tianjin Da Qiu Zhuang Sheet Metal Co Ltd will add four new production lines to increase production of steel products by 150,000 tons. The new facility will begin production by the end of 2005. DQ currently has six production lines in operation and will expand to 10 production lines. As a result of this expansion, the company intends to increase its market share of steel sheets used in the production of agricultural vehicles in China to 60% from the current 40%.
General Steel Holdings Inc a People's Republic of China limited liability corporation is a manufacturer of high quality hot-rolled steel sheets primarily for use in tractors, agricultural vehicles and other specialty vehicles. Since 1998, it has expanded its operations to six production lines capable of processing 250,000 tons of 0.7-2.0mm hot-rolled carbon steel sheets per year, making the company the largest producer in its product category in China, with a 40% market share of all steel plates used in the production of agricultural vehicles in China. In 2004, its sales revenue was over $87 million and its total assets were worth nearly $53 million.
The Company recently announced an initial stage joint venture agreement with the China Inner Mongolia Baogang Steel Union ("Baotou Steel") which is anticipated to increase the annual steel plate production from the current 250,000 tons to over 1 million tons when the joint venture transaction is accomplished.
AK Steel lowers September raw material surcharges
AK Steel said on Monday it lowered its raw material surcharges for products to be shipped in September.
Flat-rolled carbon steel customers were notified that a $157 per ton surcharge will be added to invoices, while $50 per ton will be added for electrical steel products, the Middletown, Ohio-based steel manufacturer said.
That was down from the August figures of $183 per ton for flat-rolled carbon and $115 per ton for electrical steel. Surcharges are based on reported prices for raw materials and energy used to manufacture the products.
Maverick Tube Corp to acquire shares of Maverick Tube Canada
Maverick Tube Corporation and its Canadian subsidiary, Maverick Tube (Canada) Inc. announced today that the board of directors of Maverick Canada has selected September 30, 2005 as the Automatic Redemption Date for the exchangeable shares of Maverick Canada. The exchangeable shares of Maverick Canada, which were issued in conjunction with Maverick's acquisition of Prudential Steel Ltd. in 2000, will be exchanged for common shares of Maverick on a one-for-one basis on September 30, 2005.
Maverick Tube Corporation is a St. Louis, Missouri, based manufacturer of tubular products in the energy industry for exploration, production, and transmission, as well as industrial tubing products (steel electrical conduit, HSS, standard pipe, pipe piling, and mechanical tubing) used in various applications.
Mittal Steel, Ministerial C'ttee Discuss MDA in Liberia
Members of the Inter-Ministerial Technical Committee met with Mittal representatives yesterday to discuss the Mineral Development Agreement (MDA) for re-development of the former Lamco Operations.
A source for Mittal Steel indicated that the negotiations are going on extraordinarily well and that the potential offering to Liberia and its people, pending the signing of the agreement, is significant not just in terms of Royalties and Tax incomes, but in the improvement of the social infrastructure of the regions of operation. This, if agreement can be reached, then the potential employment and social improvement of the area will be a welcome relief for Liberia.
A source for Mittal Steel indicated that the MDA encompassed not only the proposal for redevelopment of the mine but the supporting railway and port at Buchanan.The social aspects of the MDA include plans for free primary and secondary education for all employees' dependants. There will be operational and advanced training including scholarships for overseas advanced education. The MDA also includes provisions for the University of Liberia Mining and Geology Department. In addition to this, a substantial annual contribution will be made available for Liberian communities that will be managed on a continual basis by a special committee.
It must be appreciated that Mittal Steel is very serious in redeveloping the mine at the earliest opportunity. It must also be noted that the success of this project will pave the way forward for other interested investors to look at Liberia seriously. A representative for Mittal Steel indicated that it is anticipated that the agreement could be signed in the next few days.
ECPN to sell the El Capitan Mine to Pavlich Associates
El Capitan Precious Metals, Inc. announces that a contract has been executed between the Company and Pavlich Associates for the purpose of selling the El Capitan mine to a major mining company.
The marketing of the mine will commence as soon as the initial report from Dr. Clyde Smith, the Company's consulting geologist, is released. This event should take place in the very near future. In addition, an addendum to the report will be prepared by Dr. Smith based on the results of a second drilling and assay project. This project is expected to show a significant increase in the estimated tonnage of the mine as compared to the data from the initial drilling. The drilling is near completion at this time.
El Capitan Precious Metals, Inc. is an exploration stage company that owns a 40% interest in the El Capitan mine located near Capitan, New Mexico, as well as a joint venture and 20% ownership of 13 mining claims and other assets known as the C.O.D. mine located near Kingman, Arizona. In addition, the Company owns contractual rights to the Rainbow Valley mine consisting of 1660 acres and 100% of the Weaver mine, both near Phoenix, Arizona.
Australian-U.S. coal gasification project
Syntroleum Corp. said Monday it has agreed to develop a coal-to-oil project with Australia's Linc Energy Pty. Ltd. The company's agreement calls for them to use Syntroleum's proprietary air-based Fischer-Tropsch technology and Linc Energy's underground coal gasification, or UCG, technology at Linc Energy's ongoing Chinchilla coal project in Queensland.
The UCG process involves injecting air and steam into an underground coal seam through boreholes and igniting the coal in situ. The coal seam is gasified and hot product gas containing the key feedstock for power generation or synthetic gas is produced via a second series of boreholes. The UCG synthetic gas, which undergoes sulfur removal and additional conditioning at the surface, resembles synthetic gas obtained from conventional surface coal gasification systems but costs far less.
The coal-derived synthetic gas is burned in gas turbines to produce power or is used as feedstock for reactors and refining processes to make ultra-clean diesel fuel.
Coal crushing at low cost per tonne
An updated model of the Pennsylvania Coalpactor coal crusher has been released. The equipment efficiently crushes coal, petroleum coke and waste coals such as bituminous gob or anthracite culm. The company says it delivers coal at the lowest cost-per-tonne crushed, at high reduction ratios and high capacities, while using less power than other models.
Coalpactors crush mainly by impact and incorporate progressively smaller clearances between the breaking elements. This allows sure control over output size while creating minimum fines; a typical output size is 95% minus 6mm. In addition, this model readily handles high moisture content material.
A wide range of adjustments enables rapid changes to output size or to compensate for normal wear. Its rotor is reversible so it can balance the wear between two complete sets of breaker plate assemblies and keep hammers sharp.
Coal worth $50m puts snails at risk
Environmental groups say that plans to shift an entire colony of rare giant snails that are in the way of coalmining operations at Stockton risk sending the species to extinction as State owned enterprise Solid Energy has applied for permission to move the snails, including scooping up their habitat, to reach a rich coal seam beneath the summit of Mount Augustus. Scientists believe that the powelliphanta augustus snails, which number less than 1000, are found only within the Stockton open-cast coalmine.
Solid Energy accepts they have a different exterior appearance but is awaiting the outcome of genetic trials by the Department of Conservation for permission under the Wildlife Act to move the colony 400m down the hill. Solid Energy environmental manager Mark Pizey said the company would take every care to maintain the population in its new location. But Forest and Bird regional field officer Eugenie Sage said the company was dicing with the snails' survival. If the translocation failed it would be the first recorded extinction of a powelliphanta species since European settlement
.
Buller Conservation Group spokesman Peter Lusk said that while the coal lying beneath the snail habitat may be worth $50 million, the value of the unique snails could not be measured in dollar terms.
MMC Norilsk Nickel net up by 7.6% in H1
JSC MMC Norilsk Nickel announced net income of 24,9 billion rubles for the first half of 2005, up 7.6 percent from the same period last year. Company's for an accounting period increased by 14.5 percent to reach 82,56 billion rubles. Company's gross profit rose 33 percent to come to 53,89 billion rubles. The sales profit rose 43 percent up to 48,48 billion rubles, pretax proceeds amounted to 35 billion rubles, up 9.3 percent.
MMC Norilsk Nickel Group produces nickel, copper, cobalt, palladium, platinum and other precious metals (gold, silver), selenium, tellurium, technical sulfur, hard coal and other materials for industrial needs.MMC Norilsk Nickel is the world's largest producer of nickel and palladium and one of the largest producers of platinum. Its market share exceeds 10% of cobalt and 3% of copper production worldwide. Domestically, MMC Norilsk Nickel holds close to a 96% market share of nickel, 55% of copper and 95% of cobalt production.
Norilsk Nickel is one of the leaders in the national economy - its enterprises account for 4.3% of the Russian export. The share of Norilsk Nickel in the Russia's GDP is 1.9%, and 2.8% in the industrial output of the Russian Federation, that is 27.9% of the non-ferrous industry.
