With the financial health of steel companies getting better, helped by lower imports and a spurt in demand, their plea for a comprehensive financial package is unlikely to be met. Asked about the proposal for financial package, steel secretary Aruna Sundarrajan told FE, “The ball is in the courts of the banks. But I think their (the steel companies’) financial position is healthier now”. Being a de-regulated sector, steel ministry, by the way, does not have a say on the matter.
The steel majors asked for a package that includes a one-year moratorium on payment of interest and principal amounts.
The government, which took a slew of measures in recent past to rein in rising steel imports from China, Japan and Korea, doesn’t seem to be keen on pushing banks to help domestic steelmakers further with softer terms and conditions for repayment, but would rather ask them to strive for increasing efficiencies in production. Primary steel companies in India have a combined debt of around Rs 3 lakh crore to the banks now.
Industry watchers are also of the view that because of the hike in prices of alloy, subsequent to the imposition of minimum import price (MIP) in early February, in the range of Rs 5,000-6,000 per tonne for hot rolled coil (HRC) to nearly Rs 32,000 a tonne now, steel mills should be making sufficient margins which are enough to pay their interest burden.
Steelmakers knocked at the Indian Banks’ Association (IBA)’s doors through Indian Steel Association (ISA) in February seeking an immediate disbursement of a “steel package” to tide over the crisis which was saddled with imports at predatory prices and lukewarm demand. Steel industry, as a result, was forced to idle their capacities, in certain cases.
The repayment problem, however, also stemmed from building up of capacity without seeing and sensing the potential demand growth domestically. India has now around 110 MT annual steel-making capacity, though the actual consumption was just 80 MT in 2015-16. On top of that, 14% of the total consumption was fed by imports, according to Joint Plant Committee.
However, if IBA requests the ministry to take some more remedial measures for the betterment of the steel industry, it would consider. But it would refrain from taking any further step if the banks and the industry are able to resolve the issues between them.
The ministry, Sundarrajan said, would wait to “see the improvement in the financial positions of the steel companies and whether with that, they are able to get out of the stressed situation.” In the meantime, it will try to see that at least public sector firms are striving to be more efficient to be more cost-competitive in terms of production. The ministry will also look at the external factors that affect costs.
Major Indian steel firms generally raise their prices in tandem. A Mumbai-based brokerage firm said with the recent price hike, margins for companies like JSW Steel should recover to Rs 7,500-8,000 per tonne now from Rs 4,600-6,000 per tonne in the third quarter of the current financial year.