Five of the top ten private steel companies are facing sever financial stress due to delay in implementation of their projects, according to the Financial Stability Report published by RBI on Thursday.

Listing out the woes of the industry, the central bank in its half-yearly review of the economy said steel companies’ expansion projects are getting delayed due to problems with land acquisition, environmental clearances among other factors.

Challenges

Though the sector holds good long-term prospects it is currently under stress, necessitating a close watch by lenders.

The industry is also facing other challenges with respect to access to capital for investment, shortage of iron ore, low-paced mechanisation of mines, lower level of capacity-utilisation of coal washeries, dependence on imported coking coal and volatility in the currency market.

Accessing the overseas market, the report said the industry faces high domestic port charges amidst low domestic demand.

China and Brazil continue to dump steel in India due to lower customs duty on stainless steel while exports from India have fallen substantially due to subdued demand and levy of 50-55 per cent anti-dumping duty by the US on Indian SAW pipes, it said.

The depressed global steel prices have taken a toll on Indian steel companies on the pricing front in domestic market. A mismatch in steel pricing leads to large-scale imports.

“These factors have created stress in the sector in general and more particular in case of private sector companies,” the report said.

Currently, India is the third largest producer of steel in the world.

The Centre has taken many initiatives such as increasing the import duty from 5 per cent to 15 per cent for finished and semi-finished steel, encouraging use of green technologies, improved logistics, increased emphasis on research and development, and relaxation of ECB rules, which will help redress the problems faced by the industry in the long run.

In order to boost domestic demand, it said, the 12th Five Year Plan has envisaged an estimated investment of about $one trillion to build urban infrastructure over the next 20 years.

Silver lining

Other factors such as estimated increase of the urban population to 600 million by 2030, emergence of the rural market for steel by-projects such as Bharat Nirman, the PraLisn Mantri Gram Sadak Yojana, the Rajiv Gandhi Awaas Yojana and the recent push for highway projects by the government, will help in raising domestic demand for steel.

On a positive note, the report said India seems poised to become the second largest producer of steel in the world in the years to come.

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