Global demand, local infra spends bode well for steel

Global demand, local infra spends bode well for steel
28/12/2017 , by , in ALLIED

The commencement of a long overdue restructuring of the Indian steel industry may be seen as one of the sectoral milestones of 2017. The year also saw two policy interventions by the government aimed at boosting domestic production and consumption of value-added steel in government projects.

Several steel companies, including some promoted by big corporate houses, were referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code. The steel sector accounts for almost 30% of the non-performing assets of the banking industry.

Seen as a long overdue measure, this happened at a time when the domestic industry regained its fundamentals amid strong export demand and a revival of the domestic market. Crude steel production rose by more than 5% to touch 92 million tonnes between January and November 2017, according to official data.

Exports amounted to 8.9 million tonnes in the first 10 months of calendar 2017, against imports of 6.6 million tonnes of finished steel. This year too, the government safeguarded the interests of domestic players by imposing a 4% additional dumping duty and a 1% countervailing duty. “Indian exporters got a bigger export market at a time when overall sentiment was good,” an industry consultant said.

Indian steelmakers also became more competitive during the year on grounds of quality and their deliveries. Firms like Tata Steel and JSW harnessed advanced technology to augment quality. Mention may be made of the Hilsarna technology. Tata Steel said it expected this technology to go commercial in about a decade, enabling it to reduce footprint and costs. India’s largest steel producer Steel Authority of India also improved product quality through use of this technology.

Higher margins

In financial performance, steel firms have started realising higher operating margins on the back of improved domestic and international steel prices. A scan of the financials of four major steel producers — SAIL, Tata Steel, JSW Steel and JSPL — showed that between the fourth quarter of FY17 and the first two quarters of FY18, all the four were EBIDTA positive, although SAIL and JSPL posted losses in the three quarters under review.

Domestic prices improved significantly during the year, with the overall trend remaining steady for long and flat products, in the three product groups of TMT bars, cold-rolled coils and hot-rolled coils. These products find use in construction, automobile and the white goods segment. Value addition and increased branding saw a thrust from all major firms.

The National Steel Policy 2017 was rolled out to enable the domestic steel industry to reach a capacity of 300 million tonnes (mt) by 2030-31 (against 126 mt now) while setting global benchmarks in terms of quality and technology. The policy on preference to Domestically Manufactured Iron and Steel Products aims at facilitating consumption of domestic value-added steel in government procurement in sectors such as oil & gas, shipping, ports and airports. The policy mandates value addition of 15% on imported steel to qualify for bidding in government projects.

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