'The cost of capital in India is very high'
Furquan Moharkan, November 29, 2015, DHNS
Brazil's Gerdau (Real 42.546 billion or $11.37 billion) is a leading multinational steel producer with operations around the world, including India. In a telephonic interaction with Deccan Herald'sFurquan Moharkan, Gerdau Steel India's Managing Director Shridhar Krishnamoorthy spoke about the steel industry's current dynamics:
Can you provide us with a broad overview of the problems faced by the steel sector in India?
Today, the biggest problem the industry faces is the volumes of imports that are coming in, especially from China. The volumes of imports and the prices at which they are landing are making it difficult for us to face the competition, although there is underlying demand. China has built far excess capacity and with the fall in demand, they have to shift it somewhere. Many Chinese companies have been making losses in the past two quarters.
Steel sector assets are among the most stressed assets for banks right now. Is there any particular reason?
The cost of capital in India is very high. There is a differential of four to five per cent in the cost of debt in India and China. There are many companies that are facing the issue. We, at Gerdau, are well within our means. The reasons for defaulting vary from one company to the other.
What makes Chinese steel cheaper thanIndian steel?
There are certain export incentives with steel there. They get tax rebates on exports since many years. Second, the scale at which they are operating is very high. India for now is a new market for them, and they are using low pricing as a key to penetrate the market. But in the long run, I think even the Chinese companies will lose money with such low pricing.
Is there any kind of segment in the steel sector that is promoting imports to China?
In the supply chain, where we supply to automobile manufacturers, even they are importing steel due to immediate gain. But due to our customisation, I am very hopeful on that front. We are open to fair competition, but we need certain time to adjust to reality.
When is the business cycle of steel expected to revive?
Basically, we are hoping that once the infrastructure road blocks are cleared, then the steel sector would revive.
Infra industry is heavily dependent on steel. So this will really prop up demand for steel. Growth is expected in the automobile sector. As members of Indian Steel Association, we are lobbying with the government for more steel-oriented infra growth. But right now there is a vacuum and nobody is moving.
Has the government shown any initiative in this regard till now?
I think in Andhra Pradesh, we are seeing this kind of momentum happening, with the construction of the new capital. I think projects will start coming in the second half of 2016. Till now it has been more of talk and less of action by the government.
Does anti-dumping duty help to a certain extent?
It is applicable to only a segment of products. It has stopped the market from sliding down. At least, it has made the market stable.
Any kind of measures that you suggest both in the long run as well as in the short run?
In short, certain kind of safeguard duties will be very beneficial. In the long run, I think ISA needs to have a dialogue with its Chinese counterparts. Also, the government needs to raise the issue with China and fix a particular volume and price for exports.
At a recent steel conference in Shanghai, it was forecasted that Chinese steel consumption will go down from 806 million tonnes in 2015 to 783 million tonnes in 2016, and in 2020 the Chinese steel consumption is expected to be 702 million tonnes, a drop from today’s level by more than 100 million tonnes. This drop alone is equal to India’s current level of production. That would be very beneficial in such a scenario.
Timeline
1907
August 26: Tata Iron and Steel Company (TISCO) was formed as a Swadeshi venture to produce 120,000 tonnes of pig iron
1918
IISCO Steel Plant was set up, which started producing pig iron at Burnpur in 1922
1937
The Steel Corporation of Bengal (SCOB) was formed, which started making steel at its Asansol plant
1952
Jindal Steel & Power was founded by OP Jindal
1973
January 24: SAIL was incorporated and made responsible for managing five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur; the Alloy Steel Plant; and the Salem Steel Plant
2014
April 13: It was announced that India has become net exporter of steel for 2013-14
2015
March 22: It was announced that India has become the second largest producer of steel overtaking the US
June 6: India imposes anti-dumping duty on imports of steel up to $316/tonne
September 14:India imposes safeguard duty of 20 per cent on certain steel products.
Can you provide us with a broad overview of the problems faced by the steel sector in India?
Today, the biggest problem the industry faces is the volumes of imports that are coming in, especially from China. The volumes of imports and the prices at which they are landing are making it difficult for us to face the competition, although there is underlying demand. China has built far excess capacity and with the fall in demand, they have to shift it somewhere. Many Chinese companies have been making losses in the past two quarters.
Steel sector assets are among the most stressed assets for banks right now. Is there any particular reason?
The cost of capital in India is very high. There is a differential of four to five per cent in the cost of debt in India and China. There are many companies that are facing the issue. We, at Gerdau, are well within our means. The reasons for defaulting vary from one company to the other.
What makes Chinese steel cheaper thanIndian steel?
There are certain export incentives with steel there. They get tax rebates on exports since many years. Second, the scale at which they are operating is very high. India for now is a new market for them, and they are using low pricing as a key to penetrate the market. But in the long run, I think even the Chinese companies will lose money with such low pricing.
Is there any kind of segment in the steel sector that is promoting imports to China?
In the supply chain, where we supply to automobile manufacturers, even they are importing steel due to immediate gain. But due to our customisation, I am very hopeful on that front. We are open to fair competition, but we need certain time to adjust to reality.
When is the business cycle of steel expected to revive?
Basically, we are hoping that once the infrastructure road blocks are cleared, then the steel sector would revive.
Infra industry is heavily dependent on steel. So this will really prop up demand for steel. Growth is expected in the automobile sector. As members of Indian Steel Association, we are lobbying with the government for more steel-oriented infra growth. But right now there is a vacuum and nobody is moving.
Has the government shown any initiative in this regard till now?
I think in Andhra Pradesh, we are seeing this kind of momentum happening, with the construction of the new capital. I think projects will start coming in the second half of 2016. Till now it has been more of talk and less of action by the government.
Does anti-dumping duty help to a certain extent?
It is applicable to only a segment of products. It has stopped the market from sliding down. At least, it has made the market stable.
Any kind of measures that you suggest both in the long run as well as in the short run?
In short, certain kind of safeguard duties will be very beneficial. In the long run, I think ISA needs to have a dialogue with its Chinese counterparts. Also, the government needs to raise the issue with China and fix a particular volume and price for exports.
At a recent steel conference in Shanghai, it was forecasted that Chinese steel consumption will go down from 806 million tonnes in 2015 to 783 million tonnes in 2016, and in 2020 the Chinese steel consumption is expected to be 702 million tonnes, a drop from today’s level by more than 100 million tonnes. This drop alone is equal to India’s current level of production. That would be very beneficial in such a scenario.
Timeline
1907
August 26: Tata Iron and Steel Company (TISCO) was formed as a Swadeshi venture to produce 120,000 tonnes of pig iron
1918
IISCO Steel Plant was set up, which started producing pig iron at Burnpur in 1922
1937
The Steel Corporation of Bengal (SCOB) was formed, which started making steel at its Asansol plant
1952
Jindal Steel & Power was founded by OP Jindal
1973
January 24: SAIL was incorporated and made responsible for managing five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur; the Alloy Steel Plant; and the Salem Steel Plant
2014
April 13: It was announced that India has become net exporter of steel for 2013-14
2015
March 22: It was announced that India has become the second largest producer of steel overtaking the US
June 6: India imposes anti-dumping duty on imports of steel up to $316/tonne
September 14:India imposes safeguard duty of 20 per cent on certain steel products.
0 comments:
Post a Comment