On back of rapid industrial development, India has become the 3rd largest steel producer globally contributing about 2% of the country’s GDP with production of 91.9 MT and a capacity of 122 MT in FY16. Production crossed the 100 million tonnes mark in FY17.
The Union Cabinet has given its approval for National Steel Policy (NSP) 2017. The policy represents the long term vision of the Government to give required momentum to the steel sector. It seeks to enhance domestic steel consumption and ensure high quality steel production and create a technologically advanced and globally competitive steel industry.
The New steel policy, 2017 has the following aspirations:
With the roll out of the National Steel Policy – 2017, it is envisaged that the industry will be steered towards creating an environment for promoting domestic steel and thereby ensuring a scenario where production meets the anticipated pace of growth in consumption, through a technologically advanced and globally competitive steel industry.
CARE View
Table 1: Steel production (million tonnes)
Source: Office of Economic Advisor, National Steel Policy 2017 |
However, as per RBI’s FSR the stressed advanced ratio was the highest for basic metals and their products at 42.9% as of September 2016. Therefore, the banking system hasn’t been lending much to the industry which has to depend progressively on the bond market. For this the companies in the industry will need to have a strong credit standing.
Financial Performance
The introduction of the Minimum import price (MIP) on steel by the government during the FY17 supported the player’s margins during the year. The industry’s losses reduced during April-December 2016 compared to the corresponding period last year. Sales of the 111 steel companies improved during Apr-Dec 2016 where the industry’s revenues grew by 9.3% on a y-o-y basis during the period backed by an increase in prices and production. However, the net margins still remained negative despite higher sales during the year.
In the December 2016 quarter, the industry reported a significant improvement on the sales and profits front on account of improved prices and production. On a y-o-y basis, industry’s sales increased by 29% and it reported notable reduction in net losses during the quarter ended December 2016. The industry’s results are based on the financial results of 111 listed steel companies.
Chart 1: Sales (Rs crore) and margins of players (%)
Source: AceEquity |
Quite clearly the industry’s financial performance would have to improve sharply to be in a position to borrow from the bond market.
The government has also announced a policy for providing preference to domestically manufactured Iron & Steel products in Government procurement. The policy mandates the following:
CARE View
The policy is being considered as a positive measure taken by the government to increase the off-take of domestic production while not putting restrictions on the imports. The government plans to domestically meet entire demand of high grade automotive steel, electrical steel, special steels and alloys for strategic applications. The government also plans to increase domestic availability of washed coking coal so as to reduce import dependence on coking coal to 50%. The policy is envisaged to promote growth and development of domestic steel Industry and reduce the inclination to use, low quality low cost imported steel in Government funded projects.
On the whole these two measures should give a fillip to the steel industry in the coming years and should be viewed positively.
