NEW DELHI, Dec 31: The over USD 100 billion Indian steel industry is placing bets on rising domestic demand in the new year as it tries to counter predatory pricing and import glut that haunted the sector in 2015.
Amidst subdued demand and the specter of China flooding global markets with cheaper products, analysts predict a tough 2016 for the industry worldwide but expect India to remain more profitable than its Asian peers helped by higher domestic economic growth and rising demand.
The year 2015 was marked by deflation of commodity prices globally bringing down steel prices. In the Indian context, the drop was steeper than that of other raw materials, leading to severe pressure on operating margins of steel plants.
Besides, weak demand in major steel producing countries such as China, Japan and South Korea led them to focus on exports at aggressive prices, including on India, adversely impacting the domestic industry. It led to prices of some products hit a ten-year low in Indian market.
The combination of predatory pricing and import glut have jeopardised billion of dollars in loans raised by the domestic steel companies for capacity expansion, a situation that has a major bearing on the financial health of some of the largest banks in India.
The steel sector is a major contributor to the Non- Performing Assets or bad loan woes of the public sector banks saddled with gross NPAs of around Rs 3 lakh crore.
“Steel industry is tense, not just in India but the world over. But, India has been better placed this year compared to other countries. We increased production as well as demand this year,” Steel Minister Narendra Singh Tomar told PTI.
In 2015, India achieved the distinction of being the third largest steel producer globally. Demand during April to November rose by 5.3 per cent and production grew by 2.4 per cent during the same period, he added.
“Experts from the steel sector are saying that industry might remain tense next year as well as in 2017. But, I feel the sector runs according to market situation and I believe we should be able to come out of this situation very soon,” he said.
On the much awaited Minimum Import Price (MIP) on certain categories of steel products, Tomar said the government will look after the interest of all the steel producers, both big and small. Government is considering the Minimum Import Price.
“At present imports are hurting the domestic industry. The government is aware of it and it has taken steps to check this,” the minister said, adding that it is talking to the Commerce Ministry on this issue.
Global ratings agency Moody’s expects profitability of Indian steel firms to be lower in 2016 compared to the previous years, but the country would be better placed than its peers in Asia, where it expects the sector to be hit by weak profitability and oversupply.
China will boost steel shipments to India, but recently imposed safeguard duties will have a modest positive impact on Indian steel producers’ profitability, it added. (PTI)
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