Steel faces pricing, supply woes
Some insolvent firms grappling with low capacity utilisation, adding to problems
With insolvent companies such as Amtek Auto and Adhunik Metaliks running at very low capacity utilisation levels, the domestic steel industry faces a production threat amid strong customer resistance for a price hike.
“Customers are lining up purchases on current requirements rather than on a long-term basis, because of high prices,” said Nikunj Turakhia, president of the Steel Users Federation of India (SUFI). “Prices of both long and flat steel products have gone up significantly in the past few months.”
Flat steel is used in the automotive sector, while long steel products find wide application in the construction and infrastructure segments. Long steel prices have jumped over recent months to ~45,000 a tonne, from ~34,000 a tonne; these have since tapered to ~40,000 a tonne, still on the higher side. Flat steel product prices were raised by ~1,250 a tonne from August to ~47,000 per tonne, say traders. “Adhunik Metaliks is shut completely and Amtek Auto is running at 21-23 per cent capacity utilisation,” Sanjeev Gupta, executive chairman of UK-based Liberty House Group, had said.
His group recently bought both and aims to invest ~3 billion to restart and modernise Adhunik, an alloy and special construction steel manufacturer, and Zion Steel, part of Adhunik. National Steel and Indian Steel might also be soon going before the National Company Law Tribunal (NCLT) for loan payment issues, adding to the supply woes, say industry officials.
“Madhya Pradesh-based National Steel is running at 15-20 per cent capacity. So, Maharashtra is making up for the shortage in production. This is pushing up costs and creating shortage in Maharashtra,” said a Mumbai-based trader.
“It is similar with India Steel in Gujarat, running at 25-26 per cent capacity and putting pressure on Maharashtra to meet the shortage.”
To meet the long product shortage in the domestic market, rolling mills, which were shut for three or four years, have got back in action. “Customers who are not very quality conscious are going for steel made by rolling mills. Small rolling mills have started operating again, since steel prices have risen significantly and it has become viable for them to operate their units. Those wanting quality are approaching big players such as Tata Steel and JSW Steel,” said Danesh Mehta, a Mumbai-based trader and member of the Bombay Iron Merchants’ Association.
Industry officials said JSW Steel is capturing market share by brokering a deal for debt-laden Uttam Galva. “JSW Steel gives its hot-rolled (HR) coils to customers who get it converted to certain value added products from Uttam Galva. The latter has gotten into conversion business in the past 10-12 days to address its low capacity utilisation issue,” said the Mumbai-based trader.
Revenues of Uttam Galva Steels had halved in 2017-18 from the preceding year. In June, the NCLT's Mumbai bench had received an insolvency petition filed by State Bank of India against Uttam Value Steel, a listed subsidiary of Uttam Galva.
“We are giving some HR-coils to Uttam Galva for conversion directly. I am not aware of where Uttam is getting remaining conversion business from,” Jayant Acharya, director commercial at JSW Steel, said.
With insolvent firms witnessing poor performance, buyers of the material have had to realign their supply chains but this is becoming difficult. “The contracts with these (insolvent) companies (insolvent companies) had quality and supply assurance, along with known terms and conditions. It is becoming difficult for the market to realign itself,” said Turakhia.
However, not all insolvent entities are grappling with low capacity utilisation. The Sanjay Singhal-led Bhushan Power has seen its June quarter production at 464,000 tonnes, from 332,000 tonnes in the September quarter last year. “During the CIRP (Corporate Insolvency Resolution Process) process, Bhushan Power’s capacity utilisation has only increased,” said Surinder Rahane, technical advisor for Bhushan Power's resolution profesional team. He, however, did not give any details.
NCLAT-listed Bhushan Power has received bids from Tata Steel, Liberty House and JSW Steel. It made an operating profit in the June quarter, after operational losses for four quarters.