Stayin’ Alive Part One: Indian Steel Companies Resort to M&A to Keep Afloat

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That the global steel industry is in a downturn is NOT news. What does make headlines, though, is how various steel makers are dealing with the situation. Some find new steel products or markets to survive. Others, about to go belly-up, express their willingness to be acquired while others, still, have already folded.

Despite bleak global conditions India’s steel industry was quite robust, thanks to its vast domestic appetite for steel, until recently. The double whammy of an economic slowdown and a ban on the mining of iron ore has left even steel companies in India resorting to extremes – merging with a competitor or agreeing to be acquired – to shore up their bottom line.

These are, according to many sector analysts, minor hiccups in India’s onward march to becoming a global leader in steel. Currently the world’s fourth-largest steel industry, Indian steel companies have deployed a multi-pronged approach in their fight to stay afloat. Some are even turning an adversarial condition into an opportunity. Many, like Tata Steel, have started looking beyond the Indian horizon, constantly juggling their company’s portfolios along the way, carving out success stories which routinely make headlines in global media.

The result of all these new machinations has turned India into a net steel exporter in 2013-14 after a gap of six years, something that many predict will continue into 2014-15 as producers look overseas to tide them over in the face of subdued domestic consumption.

Total steel exports by India during the last fiscal stood at 5.59 million tons (MT), against imports of 5.44 MT, the Joint Plan Committee, a unit of the steel ministry, reported.

One of the weapons in the arsenal of Indian steel companies, deployed by many, of late, has been mergers and acquisitions, mostly with foreign entities. To name a few from the recent past, New Zealand’s Steel and Tube Holdings announced its intention to acquire Tata Steel International Australasia, while JSW Steel, which had bid for iron ore assets of Stemcor, acquired a 26 percent equity stake for around US $7 million in a local company, Vallabh Tinplate, marking its entry into the growing Tinplate business in India.

Sohrab Darabshaw contributes an Indian perspective to MetalMiner from New Delhi.

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