Pains of Steel: After 2018 of raw material scarcity and insolvency glut, 2019 of resolutions awaited

In the meantime, lenders are waiting to save their own skin in the game and estimates suggest they may have already lost thousands of crores of rupees out of to their huge loans having gone bad.  

When the RBI decided on its first list of 12 companies for resolution under the Insolvency and Bankruptcy Code (IBC), with a collective unpaid debt of an estimated Rs 2 lakh crore, there were quite a few steel companies and the top government functionaries had grandly said at that time that all bad loans have gone out of the steel sector.  

Under the IBC resolution process, the control of a company got transferred to a Committee of Creditors, which further needs to evaluate proposals from various players to revive the company or liquidate it.  

However, the resolution seems to be far from over even after months, at least for some steel companies, as the cases have landed in courts with even erstwhile promoters making vehement attempts to regain control of their companies, facing buyout bids from global and domestic players.  

According to a Crisil report, steel companies with 22 MT capacity were referred to the National Company Law Tribunal (NCLT) in the RBI's first round of resolution of stressed assets.  

An eventual resolution may have multiple benefits as it will resolve more than half of the sector's outstanding debt, move a large

proportion of production capacity to stronger hands and consolidate the industry.   

And steel sector is considered very important for the overall economic health of the country, given its use in a number of key industries like automobile, process plants, capital goods and defence equipments.  

Minister Singh said the Indian steel sector is full of opportunities and the country must aim to grab the numero uno position in quality steel production.  

Talking about the goals that the steel ministry has set for itself for 2019, new Steel Secretary Binoy Kumar said steel players, especially the PSUs, will have to produce more value-added products.

The aim will definitely be to increase the output of special steel in the country, while the PSUs would need to ramp up their overall production, he said.  

Kumar also assured that the government would strive to ensure better availability of raw materials, which has been a key demand of the industry.  

Jayanta Roy, Senior Vice President at rating agency ICRA Limited, said the closure of mining at the country's largest iron ore miner NMDC's Donimalai mine in Karnataka will affect the availability of iron, especially for south Indian mills.  

"Authorities need to immediate steps to resolve the issue to avoid shortage," he said.  

Iron ore and coking coal are two key raw materials used in steel manufacturing, while coal is also used in a big way by captive power plants to generate power.  

According to Indian Captive Power Producers Association (ICPPA), whose members include players from key sectors such as steel and aluminium, most captive power producers are facing severe shortage of the fuel which may lead to closure of plants.  

"The coal-based steel, power and aluminium plants continue to face supply-related issues due to unavailability of adequate railway rakes," ICPPA secretary general Rajiv Agarwal said.  

The Steel Secretary said the government is also taking measures to resolve the logistic issue for smooth supply of raw materials.  

Indian Steel Association (ISA) Secretary General Bhaskar Chatterjee said the domestic steel demand outlook in China is not optimistic and this situation raises fear of large export volumes from that country.  

"We hope that 2019 will not see the spectre of large scale dumping of steel in India," he said.

SOURCE: Economic Times

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