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The Indian steel industry is in turbulent times. Demand for steel in 2016 is unlikely to increase against increasing capacities by primary players. Steelmakers are bracing for this and are struggling to maintain profits in the face of global excess capacity and historically low prices. This has led several steel plants to shut their shop or bring themselves on sale.

Excess capacity in India stands around 20-25 million tonnes, with a large number of these are small and mid-sized induction furnaces.

Rising import and increasing domestic capacity have created a challenging time for Indian steel industry. In this climate, steel companies are seeking to reduce debt, manage costs and implement operational improvements to weather the turbulence ahead. The industry is looking towards 2017 for signs of a recovery, but bracing for a tough year in 2016.

Plants for Sale

There are about 100-150 small and medium plants, which are on sale across India. Most of them are on sale because of liquidity issue and unfavorable government policies.

High Power Charges

For an instance, a 7 MT induction furnace based in Punjab is on sale because of high electricity charges. Mr Garg, who owns that unit claimed that it is not viable to produce billet in this part of region. For a smelter based in Chhattisgarh or Bengal electricity charges are about INR 5/unit, whereas in Punjab, it is INR 7.5/unit.

Liquidity Issue

Another instance is that a sponge iron plant of 200 TPD is on sale in Odisha owing to liquidity issues. Owner Mr Agrawal claimed that they have lost money in last couple of years owing to falling prices and low demand. Also, banks are unwilling to give them any term loan or working capital loan to any steel unit.

Government Policies

A classic example of unfavorable government policies that has forced a big pant under stress is Stemcor’s 4 MnT pellet plant. Delay in statutory clearances by the government and sudden change in export duty on pellet exports are persistently putting pressure on the company.

Excessive Loan on Primary Players Too

Not only small and mid-sized units are stressed, but primary steel producers are also struggling in this scenario due to excessive loan. As much as 37% of India Inc’s borrowings are held by companies, led by steel firms, which are not generating enough revenues to service their interest expenses — or stressed assets. Further, banks’ exposures to stressed steel companies are at 10-30% of net worth.

Banks have been talking about change in management in two steel companies for sometime now. Essar Steel, promoted by the Ruias, and Bhushan Steel both have debt of INR 40,000 crore on their books and have been declared as non-performing assets.

Bhushan Steel has again been given a June 30 deadline to ramp up production. A senior official at Bhushan Steel mentioned,"We have already reached the targets set by banks, without any additional working capital. We will slowly ramp up further. Sale of assets are also in the pipeline."