A troubled time for the Indian steel industry

Two problems for the Indian steel industry are falling prices and global competition.

The strong drop in raw material prices in the markets is generally good news for the Indian economy. There could be only one exception to the rule: steel.

Global steel prices are now at their lowest level since 2003 and steadily declining. This created problems for the steel industry in many countries. Even global giants such as US Steel, Posco and Nippon Steel have seen their profits affected in recent quarters. Indian steel companies are unlikely to be exceptions to the global trend.

Indian steel industry companies

The continued deterioration of the financial health of Indian steel companies may add to the problems that banks are currently facing. The investment bank Credit Suisse estimates that the $50 billion debt of the largest steel companies is about 15 times the collective operating profit in fiscal year 2015. The other important areas that contribute to the credit problem are textile companies, energy distributors and projects of infrastructure. But the domestic steel industry is particularly exposed to global price shocks.

The Financial Stability Report also notes: “Five of the top 10 private steel companies are feeling severe pressure due to the delayed implementation of their projects.

Steel producers in many countries are already complaining about dumping from China. A Bloomberg report cites Chinese customs data. To show that steel exports from China went up by 28%. Reaching 52,400,000 tons in the six months, until July. China is therefore pushing down steel prices in two ways: its economic slowdown has reduced global demand for steel, while domestic overcapacity is pushing firms to cut prices to sell aggressively abroad.

Some reports suggest that the Indian government is already under pressure to impose higher tariffs on steel imports. Anti-dumping actions were also initiated against imports for some types of steel from China, South Korea and Malaysia.

Its History

History offers a useful lesson. The Indian steel industry was in a similar situation in the early years of this century: high levels of debt, overcapacity, low prices, dumping from China and failure to service bank loans. The way out of this situation was a long one. . Difficult decisions had to be made. Neither the managements of the steel companies, nor the bankers, who lent to the industry, can afford to ignore this harsh reality.

Article source: http://www.livemint.com/Opinion/J17b2iGXgFGdkT0C0bkwgJ/A-troubled-time-for-Indias-steel-industry.html

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