Steel Authority of India Ltd. looks to export market as domestic demand drops

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Once, it used to be a major supplier of steel for most of India’s domestic consumers.

But with COVID-19 and its subsequent lockdowns and the almost overnight disappearance of the steel market, the public company Steel Authority of India Ltd (SAIL) finds itself painted into a corner.

Now, it says, to counter the slowdown, SAIL will export steel to tide over the crisis, Livemint reports.

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When the first of the lockdowns was announced in India, SAIL’s inventory stood at about 2 million tons of steel.

Now, it looks to foreign shores with a hope of clearing this stock.

Luckily for SAIL, the decks to export were swiftly cleared by the Indian government as early as March, the Daily Pioneer reported. The public behemoth was given the necessary clearances to start export operations from the Paradip Port in the Odisha province.

Incidentally, SAIL recorded the highest output in fiscal year 2020 by making 16.15 million tons of steel. Last year, one of those rare times when it did so, SAIL exported 1.18 million tons, its highest ever.

But now, in the months of the pandemic, SAIL has ramped up exports and built new customer relationships abroad, especially in China and Vietnam.

As reported by MetalMiner earlier, many Indian steel companies were now exporting raw steel and finished goods to overcome the massive drop in local demand.

According to figures released by the Indian government, India’s crude steel production has dropped by a record 69.5% year over year in April 2020, with all of the country’s manufacturers producing only 2.8 million tons of steel in the first full month of the lockdown.

Demand for steel contracted by 91% year over year in April because almost all steel-dependent sectors, like automobile and real estate, shut down.

SAIL management is hoping domestic demand will pick up within the next few months. Increased demand coupled with a rise exports will help the steel company tide over this crisis, SAIL hopes. Its plants are currently running at 45% capacity, as management aims to fine-tune monthly production so that the company can sell whatever is produced and about 25-30% of the 2-million-ton inventory.

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A recent report by Edelweiss Securities indicated SAIL would have an acute cash management problem if it went ahead with an earlier debt repayment plan. Its cash flow from operations would not be enough to repay the interest cost.

There are already reports of cash collections falling to new lows and increase in borrowings, the management of which is something that SAIL needs to eventually figure out, according to industry experts.

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