India Steel Market Watch
November 20: The Indian steel industry, along with its global peers, are passing through a difficult phase on low growth in demand which is putting extreme pressure on ferro alloy prices. This, in turn, is prompting almost all manufacturers of the alloys to go for massive production cuts.
In such a situation, many in the ferro alloy industry are doubting whether India’s crucial input provider to the steel industry (which only a few years back was galloping on the back of an upward trend in steel, driven by a Chinese demand surge), will survive or down shutters.
The situation looked bright two-three years back and many then had felt that the difficult times would soon pass and the Indian ferro alloy makers, who were on an expansion spree, anticipating huge demand from Europe, will continue to grow.
However, a lot has changed since then.
Not only the demand of ferro alloys has shrunk, prices too have softened in the domestic and export markets. As a result, producing ferro alloys has become an uneconomical proposition in most of the cases and most of the units are operating at 20-40% capacity utilisation.
Because of the fall in capacity utilisation, most of the units are finding it difficult to service their debt and are constantly under pressure from banks.
ISMW met a number of ferro alloy manufacturers based out of Kolkata to take their views on what they think of the current situation and if there is any way forward.
It was found that practically none of them think they will survive for long as any indication of revival in steel demand either within the country or outside looks remote at least in the next two years.
“I do not think, there is any hope for revival in the steel industry at least in the next two years. While the steel industry is unlikely to recovery in the next two years, the ferro alloy producers are not in a position to survive even for two months,” a director of a leading producer said.
“Bankers may start taking over ferro alloys plants soon. By April next year, a clearer picture is likely to emerge as by March 2016 it will be more or less clear as to how many units are going to survive,” he said.
ISMW learns that some companies like Rohit Ferro Tech, which were planning to set up plants in Middle East and had virtually finalised deals sometime in 2012-13, have shelved such plans because of the depressed market scenario.
Similar is the fate of many other companies like Hira Power who were planning expansion within the country to reap advantage of growing exports to Europe, said another industry source.
A few months back, Rohit Ferro was in discussion with Balasore Alloys to sell its Odisha plant, but nothing concrete has emerged so far. According to information available with ICMW, the discussion were initially held up on valuation matters and later on due to inability of Balasore Alloys to arrange funds for acquisition.
Elaborating on the current situation, another official of another company said, “Sometime back, some steel and ferro alloys producers had gone for corporate debt restructuring (CDR) in anticipation that things will improve in the coming years and they will be back on track and be in a position to service their debt.”
“However, the situation has deteriorated since then and now the bankers are turning the debts to equity and taking over control of units which have failed to repay the debts,” he added.