Indian steel manufacturers are losing sleep, given the pace at which the foreign players are dumping steel in the Indian market. Steel imports grew 145% in the October to December 2014 over the same period a year ago and 127% in January 2015.
The imports are mainly from China, Japan, Korea and Russia, which are already struggling with excess capacities and weak demand. Free trade agreements with Japan and North Korea and export incentives have led to heavy dumping by the Chinese, Korean and Japanese.
Russians, too, have begun dumping steel in India, after the sudden fall in demand in Russia in recent months. Foreign companies are selling steel even at loss in order recover the fixed costs. According to industry people, the prices of imported steel across most of the categories are lower than the cost of the steel manufactured by domestic players.
Furthermore, the rising domestic iron ore price compared with international iron ore price has made Indian steel manufacturers less competitive. In the last one year, international iron ore prices have fallen 47% while domestic Iron ore prices have gone up 8%. However, the international prices still remain higher than the domestic ones.
This is a cause of concern for the Indian steel companies such as Adhunik Metals, Essar Steel, Bhushan Steel, Visa Steel, Jai Balaji Steel and Electrosteel Steel, which are grappling with weak demand, lower profitability and high debt. Larger players such as JSW SteelBSE -0.11 % and Tata SteelBSE 0.56 %, too, have been impacted. This also reflects in the December quarter numbers of these companies.
Almost all of these companies showed a degrowth in their operating profit on a quarter-on-quarter basis and incurred losses at the net profit level despite October-December being a seasonally strong quarter than the July-September one. In addition, these companies have huge debts, servicing of which is will be a problem. Debt of EBIDTA ratio, used for measuring the debt servicing ability of all these companies, is in double digits. Anything above 4 is ris ..
Source:ET
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