‘Steel output target of 300 mt is challenging amid issues over raw material availability’

Shobha Roy Kolkata | Updated on November 29, 2019 Published on November 29, 2019

Jayanta Roy, Senior V-P and Group Head, Corporate Sector Rating, ICRA   -  Debasish Bhaduri

The Indian steel industry will be able to achieve its crude steel production target of 300 million tonnes (mt) by 2030 only if the issues surrounding raw material availability are addressed. The steel sector will also require adequate funding support to be able to scale up capacity, according to experts.

The National Steel Policy (NSP), 2017 envisages investment to the tune of ₹10-lakh crore to scale up crude steel production capacity to 300 mt by 2030-31, up from the current capacity of around 140 mt.

Coking coal shortage

According to MV Subbarao, Chairman and Managing Director, KIOCL Ltd, raw material issues, which includes both availability and quality, need to be sorted out so as to be able to scale up the country’s steel production capacity.

“Nearly 85 per cent of the coking coal, which is a major raw material for steel production, is imported at present. This needs to be addressed and one way of doing it would be to make steel from scrap,” Subbarao said at a steel industry seminar here.

To achieve steel production of 300 mt, the coking coal requirement should increase three times to over 180 mt from the current 60-70 mt. The NSP also envisages an increase in the share of domestic washed coking coal and a lowering of import dependence to 50 per cent by 2030-31.

In a bid to ensure quality scrap for the steel industry and bring down imports, the Centre had, earlier this month, come out with a Steel Scrap Recycling Policy.

The move was aimed at ensuring processing and recycling of products in an organised, safe and environment-friendly manner, besides evolving a responsive ecosystem and producing high-quality ferrous scrap for quality steel production and minimising the dependency on imports.

Funding issues

Apart from raw material, funding poses a major challenge in the capacity expansion of steel companies. The total investment required to scale up capacity to 300 mt would be close to $162 billion (approximately ₹11-lakh crore) . Of this, the total debt component (assuming a debt-equity ratio of 2:1) would be close to ₹7.7-lakh crore. This would be more than double the banking sector’s current exposure to the steel sector, at around 3.13-lakh crore.

According to Jayanta Roy, Senior V-P, Group Head, Corporate Sector Ratings, ICRA Ltd, the debt market is shallow and there are still a lot of stressed assets, so availability of debt for capacity expansion in the steel sector may be a challenge.

Even on the equity front, it might be difficult for promoters to pump in funds as there has hardly been any incremental cash generation due to an impact on profitability on the back of the ongoing slowdown.

“Funding will be the biggest challenge as far as meeting the NSP target is concerned,” he said.

Published on November 29, 2019
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