Metal companies cup of woes full in 2008

Written by Smita Joshi Saha | Mumbai | Updated: Dec 31 2008, 07:43am hrs
For the metals industry, the year 2008 would be one it would want to quickly leave behind, as they stand on the threshold of the New Year. For domestic companies, the year was bereft of sheen, with Essar Steels $1.2 billion deal to acquire Esmark being called off, Sterlite and Asarcos $2.6 billion deal still hanging fire and Vedanta withdrawing its restructuring plans. Other woes included Hindalco seeing its Rs 5,000 crore rights issue devolving on the underwriters and Ispat Industries defaulting on loan repayment to the UTI. On the global level, BHP Billiton Plc called off its $58 billion bid for rival Rio Tinto citing worsening market conditions, not to mention the travails of steel giants like ArcelorMittal due to poor product offtake.

This is totally unlike 2007, where the year witnessed the biggest ever deal in the country when Tata Steel acquired Britain's largest steel maker Corus Group Plc for a whopping $12 billion and Aditya Birla group company Hindalco acquired Canada's Novelis for $6 billion. The current year has not only witnessed reduction in commodity prices but has also seen players cutting down on production and capex plans as well. The economic slowdown has prompted steelmakers including ArcelorMittal, to trim output. Indian players like JSW Steel, Essar Steel and Ispat Industries Ltd, among others, have also cut down about 15-20% of their production during the year.

Shareholders spurned Hindalcos rights shares because of the current slump in the stock markets. Similarly, investors' feedback forced metal and mining major Vedanta Resources plc to drop its restructuring plans.

Vedanta recently said that it is reviewing to reduce its announced capex by $5.1 billion. The group in September this year had announced $9.8 billion aluminium capex programme where it plans to raise aluminium smelting capacity by 2.6 million tonne per annum by 2012 to become the worlds fifth largest aluminium producer. Experts believe that in 2008, companies have adapted themselves to the weakening demand, whether its delay in projects or cutting production or calling off deals. However, the wait would continue until middle of next year, when prices are expected to rebound.

If the commodity prices dont recover, then there will be lot of pressure on companies, especially those like JSW Steel, where on the one hand, they have huge capex lined up and on other, their balance sheet is not in a very good condition, said a Mumbai-based analyst.