'Chinese dumping just a bogey'
November 29, 2015, DHNS
As the head of the association of smaller players involved in cold rolling and annealing of hot rolled coils (HRCs), Mohan Gurnani, president of the Federation of Associations of Maharashtra, holds a different perspective. He spoke to DH over phone.
On the dumping of steel by China
This is just a bogey that steel players are trying to sell. Imports are a very negligible part of the total demand. It is quite irrational to say that such a small proportion of the imports is affecting the large chunk of domestic production.
On the effect of debt on the Indian steel industry
Indian steel industry has an outstanding debt, excluding the cost of debt, of about Rs 3 lakh crores. The cost of debt is another 12 per cent. This adds up to the outstanding amount for the debt to be serviced. Now the turnover of the steel industry is almost same as its debt component. This turnover is then reduced to EBITDA, on which the debt is serviced. So, how is it possible to service such a huge burden of debt? It is actually the disproportionate debt taken by the Indian steel companies that is causing sector to underperform, not the imports coming in from China.
On recent safeguard duties imposed by the government
The hike in import duties and customs are not appreciated at all. It is going to shrink the manufacturing sector in India. On the one hand we are talking about Make in India, and on the other we are discouraging it by increasing customs and putting safeguard measures. I can guarantee you that the steel manufacturers, even after these measures, will be unhappy and their performance will not improve. Many sectors have been already affected by these measures. The production of tube pipes is already down by 50 per cent because of this. Also, government is depriving consumers of steel from buying steel at the right prices by imposing such tarrifs, to save a few mills
On the reason for the underperformance of Indian companies
World steel itself is going through a turmoil. The prices are going down because demand is falling short of supply. But at the same time, raw material prices are also going down. So the cost of producing steel is going down.
For Indian companies it is high debt that is causing the problem. The EBITDA margin on which the companies service their debt is lower than the interest burden only. So they are in a debt trap. So no matter what is being done by increasing duties, it is not going to help. The companies are giving excuses of all sorts of problems, but I think that the major problem is the debt. There hasn’t been a proportionate increase in capacity. Then where has all the money gone?
On the dumping of steel by China
This is just a bogey that steel players are trying to sell. Imports are a very negligible part of the total demand. It is quite irrational to say that such a small proportion of the imports is affecting the large chunk of domestic production.
On the effect of debt on the Indian steel industry
Indian steel industry has an outstanding debt, excluding the cost of debt, of about Rs 3 lakh crores. The cost of debt is another 12 per cent. This adds up to the outstanding amount for the debt to be serviced. Now the turnover of the steel industry is almost same as its debt component. This turnover is then reduced to EBITDA, on which the debt is serviced. So, how is it possible to service such a huge burden of debt? It is actually the disproportionate debt taken by the Indian steel companies that is causing sector to underperform, not the imports coming in from China.
On recent safeguard duties imposed by the government
The hike in import duties and customs are not appreciated at all. It is going to shrink the manufacturing sector in India. On the one hand we are talking about Make in India, and on the other we are discouraging it by increasing customs and putting safeguard measures. I can guarantee you that the steel manufacturers, even after these measures, will be unhappy and their performance will not improve. Many sectors have been already affected by these measures. The production of tube pipes is already down by 50 per cent because of this. Also, government is depriving consumers of steel from buying steel at the right prices by imposing such tarrifs, to save a few mills
On the reason for the underperformance of Indian companies
World steel itself is going through a turmoil. The prices are going down because demand is falling short of supply. But at the same time, raw material prices are also going down. So the cost of producing steel is going down.
For Indian companies it is high debt that is causing the problem. The EBITDA margin on which the companies service their debt is lower than the interest burden only. So they are in a debt trap. So no matter what is being done by increasing duties, it is not going to help. The companies are giving excuses of all sorts of problems, but I think that the major problem is the debt. There hasn’t been a proportionate increase in capacity. Then where has all the money gone?
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