Five steel companies have figured in the insolvency list — Bhushan Steel, Bhushan Power & Steel, Essar Steel, Monnet Ispat
and Electrosteel. The proposed haircuts are less than what banks expected, which is encouraging. For instance, Tata Steel will give Rs 350 billion and 12.27 per cent equity share against the loan of Rs 444.77 billion. At one point of time, they were not expecting this much. The second matter that has been settled is that of Electrosteel and even that result is good. Their non-performing asset was over Rs 100 billion, and it was settled at Rs 53.20 billion and 7.5% equity to financial creditors. In both cases, 12.27% equity is for lenders. At present, three companies are undergoing insolvency proceedings. The ultimate realisation in the banking sector would be that they were reluctant to advance loans even to small entrepreneurs in the steel sector, especially in the secondary steel industry.
With these results, the banking sector would not be hesitant to advance loans. Two years ago, when these things were taken up by the insolvency board, NPAs in the steel sector were around Rs 2.38 trillion. It was also reported that 27% of the total NPAs were in the steel sector. After dealing with these five companies, almost 60-65 per cent resolution would be there and it is encouraging in a way.
Has the impact of infrastructure and construction sectors on the steel industry declined?
If you see the overall scenario in the last four years, I would say the Indian steel sector is growing at a steady compunded annual rate (CAGR) of about 5%. That way growth rate is satisfactory compared to other developed countries where growth is negative. If we talk of our national policy with 300 million tonnes capacity and 250 million tonnes production, our consumption is growing accordingly. Four years back, the per capita steel consumption was 57 kg, which had now risen to 68 kg.
What is the reason for the increase in per capita steel consumption?
In Budget 2017-18, the provision for infrastructure was around Rs 4 trillion. If steel constitutes 10% of that component, then at least Rs 400 billion would be for the procurement of steel. This year the provision is Rs 5.97 trillion, a 22% increase from the last financial year. Consumption of finished steel has increased from 74 million tonnes in 2013-14 to 90.6 million tonnes in 2017-18.
Companies buying insolvent firms are incumbents in the steel sector. Do you think the competition in the sector would be reduced as fewer companies would be left and that could impact green field capacity expansion?
Steel is a capital-intensive sector and not everybody can get into the sector. But on the other hand, if we talk of expansion, some of the joint ventures such as ArcelorMittal and SAIL, will increase high-end steel production. We want to focus on the specialty steel segment.
These are the places that are likely to emerge as the steel hub for the country —Kalinganagar, Angul and Rourkela. At these places only, we would be creating a capacity of 100 million tonnes. That way Odisha would be the hub for the steel industry in future. Tata Steel alone would increase the Kalinganagar capacity to 8 million tonnes and companies such as Bhushan Steel
would not sit idle and would create capacities of their own. I have been told that secondary steel, which now constitutes 57% of the production, may touch 70 per cent of the total steel output by 2030-31 if over 300 million tonnes capacity is created, under the national steel policy.
Why is the SAIL-ArcelorMittal JV taking so long to fructify?
I am also keenly watching the progress. The two companies are in the process of vetting the joint venture agreement. Otherwise most of the things have been sorted out and that, too, with the satisfaction of both the parties.
How has the decision to give preference to domestically manufactured steel benefitted the industry?
Consumption would increase with the thrust on policy because only on two conditions the products from other countries would be allowed — if we do not have capacity of a particular grade of steel or we cannot offer the quantity required. Two years ago, we were supplying only 600,000 tonnes rail, this year we supplied them 920,000 tonnes of rail and our commitment for next year is 1.4 million tonnes.
JSPL has approached the Indian Railways to provide 20,000 tonnes of rail every month, or 2.4 million tonnes in two years. After this policy came about, around Rs 50 billion worth of imports have been saved.
How do you think iron ore should be priced? NMDC has been criticised on the pricing of iron ore.
This is a deregulated sector and the government does not intent to regulate prices of iron ore. In certain ways, global prices play significant role. I constituted a task force about one year back to ensure that the buyer will have enough confidence that the fluctuation will not be frequent. The prices should not be regulated but there should be a mechanism for understanding between buyers and sellers.
How do you look at the issue of India imposing duties on steel products from the US?
When the US imposed such duties, we wanted this matter to be taken up by the commerce ministry. We were of this opinion that there should be trade balance. But they exempted two countries — Mexico and Canada. India’s share of exports to the US was 0.31% or 325,000 tonnes in terms of quantity (3.7% of the total export from India to the US). It was not going to make much of an impact on our steel production.