The domestic steel industry is likely to witness ‘rationalisation and restructuring’ of capacities over the next three-five years, particularly in the fragmented secondary sector.

Partha Sengupta, President, Operations, JSW Steel, said there is likely to be ‘some integration’ in different parts of the value chain to make valuations ‘attractive’.

“The theme of restructuring in the secondary steel sector would be value-pooling and the process would be led by investors including PE funds or bankers, and promoters may play a minimal role,” he told newspersons on the sidelines of the Metals Conclave organised by the Bengal Chamber of Commerce and Industry here on Wednesday.

 

Source of NPAs

The steel industry has been one of the major contributors to the non-performing assets (NPAs) of banks, which is estimated to be close to ₹10.17 lakh crore as on the quarter ended March 2018.

The creation of excess capacity without a ‘solid underlying model’ has been cited as one of the major reasons of stress in the sector. While integrated players account for 50 per cent of the country’s steel production, the remaining comes from the fragmented sector comprising sponge iron and rolling mills.

“This (the restructuring) will be primarily necessitated by the fact that they might be unable to service debt because of outdated technology and arbitrage products. The rationalisation of capacity may be through joint ventures of different segments of the value chain,” said Sengupta.

On JSW Steel’s expansion plans, he said the project at Dolvi, Maharashtra is likely to go on stream by the end of 2019. The company is doubling capacity there to 10 mtpa at an estimated investment of ₹15,000 crore.

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