Why Steelmakers Are Bullish on Indian Production

Most of the major steel multinationals have set aside formidable capital expenditures for the long run in India, yet, for the short-term, have reported a dip in performance. Tata Steel, for example, while announcing its quarterly results (ended March 2015) recently posted a net loss, blaming Indian and European weak steel markets, and recognition of impairment in the value of its international assets for it.

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JSW Steel Ltd., India’s largest domestic steelmaker by capacity, had reported a steep 87% year-on-year decline in consolidated net profit for the quarter ended March 31, 2015. The fall in its profitability, it’s been said, was due to unfavorable conditions in the Indian steel market, compounded by the dumping of excess steel from countries such as China, Japan and South Korea.

JSW Not Giving Up

It has not given up on future projects. JSW will invest more than $800 million in India’s 2016 fiscal year and another approximately $500 million in fiscal ’17 to augment its steelmaking capacity to 18 million metric tons from 14 mmt.

In 2013 when POSCO and AcelorMittal unplugged their Indian projects, analysts had said it was for the best, in a way, because there would have been no takers for all that steel if it ever came online, leading to a glut in the Indian market.

The obvious question, then, is – will there be a repeat? Will India stick to its charted course of 8%, even 9% economic growth in the coming years to push steel consumption up, or lose momentum down the line?

Will the government address the issue of high-cost of iron ore and cheap steel imports to help steel growth? So, while steel companies may be gung ho on new capacity addition, clarity is needed on these crucial questions.

The Indian steel market, a tiny pygmy compared to the world’s largest consumer of steel in China, offers steel companies a viable, even a lucrative alternative. Multinationals like Tata Steel have gone on record to state they see no hope in the short term where European markets are concerned.

Volumes Flat

Steel volumes in Europe are expected to remain flat, it said, but sales in India were expected to grow to around 9.5 mmt, up from 8.75 mmt last year. Which means much of the steel these multinationals produce will end up in the hands of Indian customers.

But if what happened to the “ultra-mega steel plant” announced just a few weeks ago by SAIL and National Mineral Development Corporation in Chhattisgarh is any indication of things to come, it’s déjà vu. Barely days after the project’s inauguration by none other than Prime Minister Narendra Modi came the news that the project was in trouble since villagers were refusing to part with their land.

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

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