Cheap Steel Imports and Weak Demand Sink ArcelorMittal in India, Too

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It may be the world’s largest steel producer, but Lakshmi Mittal-led ArcelorMittal saw a decline in its businesses in India in 2014 for two main reasons: weak demand and cheap imports.

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The firm’s recently released annual report said ArcelorMittal and its subsidiaries rang in sales of $225 million from India. Once upon a time, in fact in 2010, ArcelorMittal’s Indian operations had netted $873 million, so that will give readers some perspective of the depth to which sales have plummeted.

It would not be an exaggeration to state that almost all of India’s major steel companies have stories similar to that of ArcelorMittal. Even the government-owned Steel Authority of India Ltd. (SAIL), which had posted a net profit for the October-December quarter 8.6% higher than the same period last year, had a similar lament.

In its Q2 results statement, the company said the turnover was impacted due to “challenging market conditions” and high imports, among other reasons.

Rough SAILing

SAIL chairman C.S. Verma told the media here that the only way his company had circumvented these challenges was by bringing in initiatives to reduce energy consumption and optimize raw material utilization, as well as adopt state-of-the-art technologies.

It looks like these measures were not enough to save SAIL from Fitch Ratings. Fitch recently lowered the outlook for SAIL’s long-term foreign currency issuer default rating to negative. The crux of the matter lay in its commentary, where Fitch said continued weak steel demand growth in India, high steel imports or a further softening in global steel prices could derail SAIL’s efforts to modernize.

Same Story at Tata Steel

Another Indian steel behemoth, Tata Steel Ltd.’s Indian steel operations had a rough quarter again for almost the same reasons — sluggish demand, cheaper imports and higher raw material costs on account of mining stoppages. In the December quarter, Tata Steel’s consolidated sales declined over the preceding quarter by 6.1% on the back of a 3.1% decline in steel volume and weak steel price realizations. The only redeeming factor here was Tata’s European operations which turned in a substantial jump in profitability.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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