Indian steel sector going through an important churn
Two steel firms made intonews early this month and others are continuing do so. The first was Tata Steel, which completed the Rs 35,200 crore acquisition of bankrupt Bhushan Steel, and the other was Mukand Ltd, which formed a joint venture company with Japan’s Sumitomo Corporation, MukandSumi Special Steel Ltd. The government termed the deal “historic”,saying banks will now be in a position to offer more and affordable credit to major sectors of the economy, especially the small-scale sector.
The steel sector is one of the largest contributors to the non-performing assets of banks.Last year, a report by SBI Research said that the top five steel firms under duress had an aggregate debt of nearly Rs 1.5 lakh crore. The top troubled steel firms are Essar Steel, Bhushan Steel, Monnet Ispat, Electrosteel Steel and JSPL.
The key factors that led to stress in the steel sector have largely been ambitious overseas acquisitions, capacity expansions, and the subsequent fall in exports due to protection measures initiated by various countries primarily resulting in the capacity overhang. As the sector is employment intensive, the socio-economic impact is wide and hence led to protectionist measures. The churn in the steel sector is real and concentrated as well.