COVER STORY
Raising the bar: Indian steel sector on capex spree Sumit Maitra
I
ndian steel industry, particularly the large primary steel makers, are ferociously creating new production capacities prodded by an apparent commodity supercycle, sustained high domestic price levels, profit reserve buffer created out of a spiraling revenue and margin improvement supported by aggressive investment in infrastructure by the government, a stated policy to overcome the ravages of the Corona pandemic. With historic sales and profit growth, steel makers are paying off their debt and thus improving their financial health to take on the responsibility of undertaking the current round of capex. And considering that steel mills are already operating at close to 90 percent capacity utilisation, steelmakers have already doubled their planned capex for the period 2022-24 compared with the previous three fiscals.
6 Steel Insights, July 2021
Medium term capacity addition plans
The top six players (SAIL, Tata Steel, JSW, RINL, Jindal Steel & Power, Tata Steel BSL) constitute around half of India’s crude steel capacity, with the balance being constituted by other small to medium scale producers. Blast Oxygen Furnace (BOF) technology accounted for 40 percent share in terms of installed capacity and 44 percent share in terms of production in Fiscal 2020. As much as 27 million tons of capacity, accounting for almost 20 percent of domestic capacity, is expected to get added by fiscal 2025. This could get accelerated further, given sizeable brownfield opportunities for companies, including in acquired assets, says rating agency Crisil. By the fag end of the current fiscal, around 7 mt of capacities including JSW’s Dolvi plant expansion of 5.6 mt, will come on board. Almost 18 mt would come as flat steel
capacity and with flat steel taking more time to recover, it shall weigh on utilisation or, alternatively, driving more flat steel towards export markets, said industry insiders. On the other hand, long steel will see better utilisation levels due to limited additions in modest demand growth scenario. Large steel makers to gain market share
All these capacities would come from large steel players. And with stressed assets worth 22 mt under the bankruptcy court along with brownfield capex and acquisitions, there will be consolidation in the industry with share of large players expected to rise to 65 percent by FY25. Large steel makers exploited the opportunities thrown up by the pandemic induced realignment of the global trade, increasing their market share by 500 basis
