International Steel Mills

India Steel Producers Hope Recovery is on Horizon

June 7, 2016

Recent reports on India’s steel sector are providing mixed signals on the industry’s health. The nation’s steel industry has suffered two years of low prices and subdued demand but rising GDP and the onset of monsoons after a severe drought may stimulate new orders.

“Indian steel demand rose 4.5 per cent in the financial year 2015-16, a slightly better growth rate than in the previous year. Demand was driven by higher public-sector spending, demonstrated by a 65 per cent year-on-year jump in railway-sector capital expenditure,” Fitch Ratings said recently.

India’s steel ministry said steel consumption in April was 5.7 million tons, an increase of 5.2 percent year over year, but down from 7.31 million tonnes in March 2016. Fitch noted that imports filled much of that demand but the level of steel imports is beginning to drop due to government levied minimum import prices.

Imports in India soared to 9.32 million tonnes in 2015 while exports declined to 5.59 million tonnes. In April 2016 imports dropped by 15.5 percent to 654,000 tonnes. India, encouraged by success of trade cases in the U.S., imposed anti-dumping duties in May on seamless steel tube and pipe from China.

Domestic steel prices are also beginning to grow as a result of the minimum import price levy. Ratings agency ICRA said prices for flat steel products jumped 25 percent from the low in February due to the minimum requirement.

The three largest steelmakers in India, SAIL, Tata and JSW have faced declining sales and profits over the past two years. The three steelmakers have borrowed nearly 15,000 crore between March 31, 2014 and March 31, 2016. In US dollars that is the equivalent of $520.8 million.

Tata Steel has divested itself of its long products Europe division as well as putting the UK assets up for sale. The company’s net loss dropped down to Rs 3,213.76 crore in Q1 compared to Rs 5,692.28 crore in Q1 2015.

JSW has ramped up three plants after shutdowns last year to complete expansions. JSW net debt for Q4 was Rs 38,500 crore. JSW Steel has an installed capacity of 18 million tonnes and expects crude steel output of 12.56 million tonnes for 2016.

Family owned Uttam Galva Steel reported a net loss of RS 1,333 crore ($20.5 million) for the first quarter 2016. The firm said “accumulated losses of the company have exceeded its net worth” and the board has declared it a “sick industrial company.”

Part of the problem facing Indian steelmakers is stalled construction projects in the public and primary sectors. Funding from the government for infrastructure projects has been slow and exacerbated by private funding delays.

“The share of stalled projects has risen steadily since June 2015, to 12.3 per cent by end of March quarter in 2016. This was mainly due to the private sector, where more than 20 per cent of investments are stagnant,” said Fitch.

Mills and distributors report inventories rising, with steel stocks at 912,000 tonnes during April, up from 683,000 tonnes in March.

The improvements in pricing and import levels have been encouraging but there is concern that if the government lifts the minimum import price at its review in August, the tentative recovery may be short-lived.

(1 crore = 100,000 rupees—exchange based $1 = 65 rupee)