IBC, growing demand spreading Christmas cheer in steel sector

All the way merry Christmas bells are ringing for the steel industry in India with rising demand for the metal in the domestic market and the country’s ambitious infrastructure plans are drawing significant investments into the sector.

India is expected to overtake the United States in steel consumption in 2019 to become the second biggest market behind China, global steel body World Steel Association said in a report.

Steel majors are passionately pursuing the country’s stressed steel assets and undertaking major capacity expansion projects. Steel makers that took part in bidding, including global giants like ArcelorMittal, are seeking to gain capacity more cheaply and quickly compared to executing greenfield projects.

At a time when the steel industry is enjoying a good time in terms of price realisation, the Insolvency and Bankruptcy Code (IBC) process provided the existing large players with the opportunity to acquire assets at low-costs.

This also provided domestic players new capacities, to enter newer markets and also offered the opportunity to foreign players to enter Indian markets, said India Ratings in its note.

Whatever the IBC process has been able to sort out for the steel sector, is a welcome development. Going further, it is expected that resolution of distressed steel assets will change the country’s flat steel landscape as more consolidation takes place and the number of companies producing flat steel reduces. The entry of ArcelorMittal into the Indian market will force existing private sector players to increase efficiency and control costs. ArcelorMittal earlier had made several attempts to advance in India with projects planned in Odisha and Jharkhand remaining  elusive. Now, with Essar Steel, ArcelorMittal will not only be getting ready capacity, but also at a time when India’s steel consumption is taking off. 

India currently has per capita steel consumption of only 70 kg a year, less than half the average of other developing nations. World Steel Association expects Indian steel demand to climb 5.5% in 2018 and 6% in 2019, making India the fastest-growing market among the world’s top 10 steel consuming countries.

Talking about the challenges for domestic steel majors like JSW Steel, the impending threat is that of the essential raw material like iron ore which needs to be utilised judiciously. 

India, though self-sufficient in iron ore resources, proper mining legislation is required to channelize this resource. Further, a proper connect is required between the iron ore miners and steel producers so that the domestic iron ore resources are utlilised properly. 

At the same time, there remains a growing industry concern of rising cheaper imports from free trade countries which needs to be addressed soon.

Surge in imports, domestic industry says, is creating market losses for the domestic steel manufacturers, prompting them to seek more permanent measures to stem inflows.

Coming to domestic market, steel producers need to take into account the technologies required for producing quality steel. India’s export of quality steel to other countries hinges on our ability and capacity to produce high quality steel within the country. If we have to compete globally, the domestic steel product needs to be of highest quality.