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Chairman's Address
On behalf of the Board of Directors and on my behalf, it gives me immense
pleasure in extending a warm welcome to each one of you to this Thirty Fourth
Annual General Meeting of the Company. I trust you have received a copy of the
Company’s Annual Report for the year 2009-10, comprising the report of the
Board of Directors, Audited Financial Statements of the Company. With your
consent, I take them as read.
Global Current Scenario of Iron & Steel Market
Steel:
World crude steel production decreased from 1326.6 million tonne in 2008 to
1219.0 million tonne in 2009, a dramatic fall of 8.1%. But while most of the world
witnessed fall in production crude steel production in China increased by 13.5%,
compared to the 2.3% growth the year before. China now accounts for almost
half of the world production of crude steel (47%). In Europe, production fell by
24% and Africa experienced a decrease of 11%. In American industry production
declined by 30% and in Oceania, production was reduced by 29%.
An unexpectedly quick recovery in world crude steel production during second
half of 2009 was almost entirely due to China. Chinese production drives growth,
but there has been some growth in other larger crude steel producing countries
as well, compared to production in 2009. If the production rate of the first half of
2010 continues, the total output of crude steel in 2010 will be somewhere around
1410 Mt, the same as in the record year of 2007.
Iron Ore:
World production of iron ore fell by 6.2% in 2009 and reached 1.6 billion tons.
This was the first fall after seven years of consecutive growth. Output decreased
in most of the countries, with a few notable exceptions such as Australia and
South Africa. But this was not enough to stop the fall. Chinese production is
crucial to understanding the dynamics of world iron ore markets.
Despite the recession, iron ore trade reached a new high in 2009 as exports
increased for the eighth year in a row and reached 955 million tonne, up by 7.4%.
The increase was the result of higher demand in China combined with a fall in
iron ore production in China.
Australia is the largest iron ore exporting country at over 360 million tonne, up by
17%. By contrast, Brazil’s exports decreased by 3.0% to 266 million tonne in
2009. Indian exports grew for the tenth consecutive year and the country is now,
at 116 million tonne, the third most important exporter.
Seaborne iron ore trade is estimated to have increased by 11% in 2009 to 895
million tonne. The increase was entirely accounted for by Chinese imports, which
rose by much more than the increase in total trade. China is by far the largest
importer and its imports grew by a massive 41% in 2009 to reach 628 million
tonne which is 67% of total world imports. Japan is the second largest importer at
105 million tonne, a decrease by 25%. European imports (excluding the CIS
countries), fell by 45% in 2009 to 100 million tonne, corresponding to 9.9% of
world imports.
Pellets:
World’s pellet production declined by almost a third in 2009, from 313 million
tonne to 215 million tonne, reflecting more than average decline in steel
production in the United States, where pellets are the predominant raw material
and attempts by steel mills everywhere to economize on raw materials during
times of low steel demand and prices. World exports are estimated to have been
88 million tonne, a decrease of 36% compared to 2008.
The share of pellets in total iron ore production in 2008 was 18%, but in 2009 it
fell to 13%.The share is decreasing steadily since the late 1990’s.
The share of pellets in total iron ore exports has declined steadily since the peak
of 2000, when it reached 21.3%. In 2008 it come down to 15% and in 2009 to
9.5%.
Pig Iron:
World pig iron production in 2009 was 900.2 million tons. This represented a
decrease of 2.9% as compared to 2008 when 927.4 million tons was produced.
China accounted for about 60% of world production of pig iron in 2009, compared
to about 51% in 2008. In quantity terms, increase is from 469.3 million tons to
543.7 million tons which represents an increase by 16%.
In India, the production rose by 2.6% (29.6 million tons) proving to be an only
exception amongst the large producers of Pig Iron.
Pricing:
The annual bench mark negotiation process ceased in early 2010, with strong
support from Japanese and European steel firms, in spite of vocal opposition
from Chinese steel companies. When Chinese steel demand recovered
surprisingly fast in the end of 2009 and early 2010 and iron ore spot prices
soared, there was simply no real support for the old system. A quarterly semi
negotiated price is the new norm. Departure from Annual Benchmark pricing
system has pushed the whole Iron Ore pricing mechanism into a whirlpool and
uncertainty and confusion is looming large regarding newly adopted quarterly
pricing mechanism. Under such fluid condition it is hard to make decision
regarding entering into term / quarterly price contract.
Current scenario on Indian Iron and Steel Market
India is the world’s fourth largest producer of iron ore. Its iron ore production has
increased continuously over the last ten years and in 2009 it rose by 20%, to
257.4 million tonne (preliminary figures), compared to 223 million tonne in 2008.
Exports of iron ore increased by 9% to 115.5 million tonne, up from 106 million
tonne in 2008. Indian producers and exporters have been quick to exploit the
exceptionally profitable spot market opportunities created by rapidly growing
Chinese demand. Since 1996 exports to China have increased from 4.3 million
tonne to 107.5 million tonne. On the other hand, exports to Japan fell by 66 %
between 1999 and 2009. The entire increase in production of iron ore since 2003
was export driven and came from existing mines.
India is a relatively important producer of pellets and both production and
capacity have been increasing over the last couple of years. In 2008, production
reached its highest level to date at an estimated 17.5 million tonne, which is
close to the capacity ceiling. Production fell considerably in 2009 to 10.5 million
tonne (estimated figures). Exports of pellets decreased to 3.0 million tonne in
2009. About 65% of pellets exports go to China.
The present pellet production capacity in India is about 19.5 million tonne /year.
Many new projects are in the pipe line.
Your Company – Present Status
The worldwide recession which was set in October 2008 started receding from
January 2010. To curtail the losses, Pellet Plant, which is the main source of
revenue generation at present for the Company, was operated intermittently until
December 2009. There was a threat of generation of slimes (upto17%) when
Hematite ore was processed in a technology which was designed for handling
magnetite iron ore concentrate. In a move to convert this threat into an
opportunity during this lean period, the thought process was shifted to R&D
activity at the pellet plant. Vision was for achieving the long term sustainability
and to improve the productivity. R&D activities have been carried out
successfully and established that the pellet plant is able to produce Pellet from
Doni ore on a stand alone basis without generating slime. This has also resulted
in a future economic benefit in cost saving in pellet production sphere. This has
enabled plant to produce 1 ton of pellet using 1 ton of Iron ore (1:1 basis) as
against 1.025 ton of Iron Ore for 1 ton of pellet (1:1.025) during the previous
year.
Immediately with the onset of the recovery, your Company changed the gear and
the Plant was operated non-stop from January to March and able to produce
0.700 million tons of pellets as against the MoU Target of 0.740 million tons.
During the fourth quarter, production level recorded its highest ever, since the
closure of the captive mine and after switching over from magnetite to hematite
ore for pellet production. At the same time sales volume has also improved to
0.679 million tons, which is also highest in terms of quantity sold in a particular
quarter. In the year as a whole, pellet production was 1.273 million tons as
compared to 1.316 million tons for 2008-09, which is almost 36% of the capacity
utilization and sales has improved to 1.456 million tons during the year from
1.131 million tons recorded during 2008-09.
Blast Furnace Unit remains as grey area for the Company even after merger. In
the absence of any value added product, the unit not only drags on the profit of
Company but also remains as unviable. Operation of the Unit has been kept
under suspension w.e.f. 5.8.2009. During the year under review, it has produced
0.062 million tons of pig iron as against 0.118 million tons during the year 2008-
09, which is almost 29% of the capacity utilization. Like pellets, the sales volume
of Pig Iron has also improved with marginal increase in the price of Pig Iron. Your
company could sell 0.094 million tons as against 0.074 million tons during 2008-09.
On the financial performance, it was a negative growth as compared to previous
year and recorded turnover of Rs.992.72 crores as against Rs.1228.98 crores
achieved during 2008-09. But the most disappointing thing is that your Company
could not keep the momentum of achieving consistent profit which it had
sustained for more than two decades. It has incurred a loss before tax of
Rs.194.95 crores and the loss after tax is Rs.177.27 crores as compared to Profit
before Tax of Rs.24.18 crores and Rs.22.01 crores after tax during 2008-09. To
sum up, the year 2009-10, by and large has been more satisfactory and would
remain memorable for achievements in terms of technology changes thereby
assuring the future benefits.
Future Initiatives:
The Company has envisaged following projects for implementation for growth of the Company:
- Installation of Horizontal Pressure Filters at Pellet Plant :
To improve the productivity by reducing the moisture content in the pellet
feed, installation of Horizontal Pressure Filter at the Pellet Plant is in
progress. Purchase order has been placed on M/s Larox Corp., Finland for
supply of three nos. Horizontal Pressure Filters and Auxiliary Equipments
along with commissioning spares. The Lead time is 12 months.
- Forward and Backward Integration at Blast Furnace Unit (BFU), Mangalore:
To make Blast Furnace Unit a viable unit on stand alone basis, an
Expression of Interest was floated inviting Interested Parties to set up value
added products such as Ductile Iron Spun Pipe (DISP), Coke Oven Battery
with CPP etc. as a forward and backward integration. The Company
simultaneously approached co-existing organizations in the Ministry of
Steel. The response from both Public Sector and Private Sector entities
were quite encouraging. As M/s RINL have evinced their interest for setting
up of DISP plant, the Board of Directors thought fit to form a Joint Venture
with them for setting up all value added products in a phased manner at
BFU. We are in the process of fixing an agency for valuation of Blast
Furnace Unit assets, in this regard.
- Integrated Steel Plant (ISP) :
In my last communiqué I had informed that State Government as a policy
for granting mining lease clearly envisages that State is in favor of
entrepreneurs establishing real value addition to iron ore like setting up
Integrated Steel Plant within the State. In this direction, an Expression of
Interest was floated for setting up 1.5 MTPA capacity Integrated Steel Plant
on equity participation in the State of Karnataka in the I phase, which
subsequently upgraded to 5.0 MTPA. In the proposed JV, your Company
proposed to take 26% equity stake. Against the said EOI, one offer from
M/s URSIPL, a sister concern of M/s United Telecom Ltd. was received.
Your Company has appointed M/s M N Dastur & Co. as Technical
consultants for the project. The bid received from M/s URSIPL was
forwarded to the Consultant for scrutiny and for techno-commercial
recommendation. Based on the evaluation the Consultants have
recommended to proceed further in the matter of drawing up the JV
agreement with M/s URSIPL. The Board of Directors agreed to initiate the
process for drawing up of the Joint Venture Agreement. The Consultants
have been advised accordingly.
- Chikkanaykanahalli Mining Lease :
Government of Karnataka has accorded in principle approval for grant of
mining lease over an area of 116.55 ha in Hombalghatta and Hosahalli
villages in favor of KIOCL. MoEF, GOI, New Delhi has accorded the
environmental clearance on 1st July, 2009 for the same. The joint survey
was carried out for demarcation of boundary. The Joint Survey sketch was
forwarded to the Director of Mines and Geology, Bangalore. Subsequently
some overlapping of blocks of allotment was observed. The matter is
pending for issue of fresh sketch after incorporating the corrections of
village boundaries. Once the formal orders are received from Govt. of
Karnataka, the same will be submitted to Dy. Conservator of Forest,
Tumkur for processing the DRP application of KIOCL.
- Other Mining leases :
The matters in respect of mining leases at Ramandurga Iron Ore Deposit in
the state of Karnataka and Khandadhar Iron Ore deposit in the state of
Orissa are under legal dispute. The Company has applied for fresh mining
leases in other State’s also and are pending for consideration.
- Contractual Mining :
The Company is in dialogue with M/s. Mahanadi Coalfields Limited, a
subsidiary Company of M/s. Coal India Limited to allocate some of their
coal blocks to KIOCL to undertake mining on contractual basis. The
discussion is going on at the highest level, which in the event materializes,
your Company can gainfully utilize idle equipments and deploy trained
manpower and generate sufficient revenue.
- Acquisition of Tungabhadra Steel Products Limited, Hospet :
The growth potential could be achieved through organic as well as
inorganic ways like acquisition, merger etc. In this background, your
Company was approached by Department of Heavy Industries, Govt. of
India, for acquisition of M/s Tungabhadra Steel Products Limited. TSPL is a
sick Company engaged in the business of structural fabrication. TSPL is
also having a mini hydel plant, situated about 200 kms. from Hospet plant.
This mini hydel plant generates about 5.5 million units of power per year.
TSPL has nearly 88 acres of land at Hospet which can be gainfully utilized
in case the mining lease for Ramandurga Iron deposit is obtained by your
Company. Discussions with Govt. of India are under progress.
- Kudremukh Mine :-
The Hon’ble Supreme Court vide its verdict dated 30th October 2002, had
allowed mining till the end of 2005 by which the weathered secondary ore
available in the already broken up area should be exhausted. An
approximate quantity of such ore available was 54 million tons.
Due to paucity of time your Company could mine only 30 million tons and
as such the remaining secondary weathered ore is still lying in the broken
up area. Further, the Company’s request for extension of time for mining
the balance secondary ore in already broken-up area vide Rejoinder
Return Submission dated 13.11.2006 was not agreed to by the Hon’ble
Court.
Exposure of the same to subsequent monsoon has resulted erosion of the
material towards check dams. There has been series of bench slopes
resulting in land slide.
The Hon’ble Supreme Court had directed Ministry of Mines to designate an
officer to take over the possession of the mine immediately and also had
directed IIT Delhi to take necessary steps to address the above issues. But
till date none of the above activities have been carried out.
In view of the safety of the mines and to safeguard the environment and
ecology it is high time for taking up the protective measures with due
permissions from the Hon’ble Supreme Court.
CORPORATE GOVERNANCE
The Company has given due importance to the concept of Corporate
Governance and has been following the principles and practices of good
governance, for enhancing the delight of shareholders and stakeholders.
CORPORATE SOCIAL RESPONSIBILITY
Our commitment to address important societal needs is driven by our vision to
contribute to the development of the communities that we operate in or have
influence on our business activities. An essential component of our Corporate
Social Responsibility is to care for the community. We endeavor to make a
positive contribution to the under privileged communities by supporting a wide
range of socio economic, educational and health initiatives. The Company spent
more than its budgeted allocation on various activities carried out under CSR.
ACKNOWELDGEMENTS
Before I Conclude, I take this opportunity to thank all the shareholders and our
valued suppliers / customers for their unstinted support and assure them of our
commitment to enlarge the stakeholder’s value constantly.
I am happy to place on record the support and valuable guidance from Ministry of
Steel, Government of India, extended to the Company. I acknowledge the
support of the various other Ministries, Authorities and Agencies of the Union
Government, the State Governments and all other stakeholders.
I would like to thank Unions and employees of our organization for their unstinted
support, hard work and dedication.
We look forward to continued support and confidence from all of you. I promise
we shall not let your trust fail.
Thanking you,
(K RANGANATH)
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