Steel industry continues to see protection benefit

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Steel companies with a sizable presence in flat steel products are beneficiaries of better pricing, because of tariff protection, in the domestic market. Prices of hot-rolled steel in the Mumbai market, a flat product mainly used in the automobile industry, have jumped 21 per cent since the beginning of 2016. This, in a business environment where consumption has remained sluggish and scope for price discovery minimal, due to curbs on imports.

Flat products have also managed to move up the price ladder in the domestic market, some of the increase being due to rising input costs. However, the same product when exported has got priced at 10-25 per cent lower than the domestically sold one. The domestic flat steel product market largely comprises big entities such as Sajjan Jindal’s JSW Steel, Ruia-owned Essar Steel, Bhushan Steel, Tata Steel and state-owned Steel Authority of India (SAIL), along with some re-rollers such as Uttam Galva and National Steel Indore. From Joint Plant Committee data, domestic steel consumption in FY17 grew only three per cent year-on-year, import declined 36 per cent, while export jumped more than 100 per cent. Production of saleable steel in the period was up 11.3 per cent over a year.

Flat steel products constitute the bulk of Indian steel import. Over the past couple of years, the government announced a slew of measures to curb cheaper import. Starting from imposition of a provisional safeguard duty on hot-rolled products in October 2015 to the ongoing anti-dumping duty, the government has been protecting the domestic industry from cheaper Chinese, Japanese and Korean steel import. The domestic steel industry comprises flat and long products. Flat products find wide application in the automobile and consumer goods sectors. Long steel is used mainly in the construction and infrastructure segments.

Flat steel products (hot-rolled and cold-rolled) covered under the anti-dumping duty regime contributed around 60 per cent to the country’s cumulative steel import between FY15 and FY17. The imposition of this duty in May 2017 for five years is expected to keep import under check for the entire duration. At one end where flat steel product prices have moved in sharp deviation from the fundamentals, prices of long steel products (billets and bars) have risen up to 10 per cent in the period under review. The long products market is fragmented and geographically scattered. Producers here operate in clusters, with pricing policies being more regional, depending on logistical and input costs in that area. Jalna, Wada, Durgapur and Raipur are some of the long product markets.

Currently, the heavily indebted domestic steel industry contributes to a little over 30 per cent in the Reserve Bank of India’s list of 12 companies that have become top non-performing assets for their banks. These accounts will be referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code. Bhushan Steel, Monnet Ispat, Essar Steel, Bhushan Power and Steel and Electrosteel Steels are members of this list.

However, the business scenario is not challenging for all domestic producers. JSW Steel announced an investment plan of Rs 26,800 crore in May towards capacity expansion over the next four years (2018-21).

The company aims at adding five million tons (mt), in anticipation of higher demand. In January, Tata Steel said it was likely to place a possible expansion plan at its Kalinganagar (Odisha) unit before its board of directors within six months.

Steel ministry data shows crude production capacity was 121.97 mt in 2015-16, up 11 per cent over 2014-15. India was third largest producer of crude steel in the world in 2015, said the World Steel Association.

Source: Business Standard