Nervous of steel

Tisco results portend industry’s declining fortunes

With the country’s largest, and arguably the most efficient, private steel producer — the Tata Iron and Steel Co Ltd — reporting a whopping 76 per cent dip in its Q2 net profit, one can well imagine what’s in store for the rest of the pack. To be sure, the company has quickly acknowledged that it has been passing through difficult times, but worryingly enough, it has ruled out any immediate improvement in performance. Tisco’s performance is a mere reflection of the generally depressed market conditions wherein margins are under pressure, offtakes are shrinking and extraneous factors have come to adversely impact the bottomline. Indeed, its production and sales were up during Q2 at 9.17 lakh tonne and 9.02 lakh tonne respectively, compared to 8.75 lakh tonne and 8.46 lakh tonne respectively in the corresponding quarter of the previous year. Yet, operating profits were down to Rs 287.48 crore against Rs 418.81 crore, reflecting poor realisations, primarily on account of depressed steel prices. Anti-dumping investigations, the levying of such duties in certain instances, and the imposition of import restrictions by the US on Indian steel exports have only led to further price compression, due to excessive availability of steel in the domestic market. And with the global economy in the throes of a downturn, little improvement can be expected on the exports front in the short-term.

It’s now up to Tisco to stem the rot. On its part, it has already embraced cost-cutting measures, and tried to improve productivity. Together with other steel majors, Tisco will have to reorient itself, achieve economies of scale and even change its product-mix so as to suit emerging demand. The Indian Steel Alliance could also work out an overall strategy to combat recessionary tendencies. More than over capacity, it is inefficient over capacity that is the bane of the global steel industry. And being the tenth largest steel producer in the world, India has a key role to play in the global arena. Simultaneously, Indian producers must join hands with their international counterparts to find ways to reduce such uneconomic capacity.