Essar Steel may finally go the ArcelorMittal way while stress in the steel sector is now way behind.
Essar Steel may finally go the ArcelorMittal way while stress in the steel sector is now way behind. Domestic and foreign investments, coupled with transfer of technology, will fuel steel sector growth, going forward, said Union Minister for Steel Chaudhary Birender Singh in an exclusive interview to Madhusudan Sahoo & K.A.Badarinath. Excerpts:
How will government deal with stress in the steel sector, as several companies did not make profit in the recent times?
There’s absolutely no stress in steel sector. In fact, there has been a turnaround in the last four years. There’s nothing that is going against growth in the steel sector that’s also capital-intensive. The phase of stress owing to non-performing assets and banks apprehension about haircuts is over.
Then, why’s it that Essar Steel is being sold at heavy discount with bankers taking a huge haircut?
Resolution of non-performing assets is a big milestone for this government. Loans sanctioned by banks under the direction of previous governments led to the build up in NPAs. Hitherto, banks did not give loans commensurate with capacities, leading to this situation. With regard to Essar Steel, the Supreme Court verdict would be final. What I understand is that Essar Steel will finally go the ArcelorMittal way. The Ruias were too late in the day when they offered to fully pay up the banks.
Even SAIL has reported losses and you say there’s no stress in the steel sector?
In the first quarter of this fiscal, our profit was little down, but in the second quarter we saw a profit of Rs 800 crore. In the third quarter, the profit levels were over Rs 500 crore. As against private players, SAIL is better off and more comfortable vis-à-vis loans from banks. Besides, we have introduced new products to meet the requirement of the Indian Railways. After all, the steel sector goes through cyclical movements.
How can you make steel business friendly for global players?
I think already there’s a business-friendly environment. The steel consumption level has increased by about 15 per cent in the last four years as against what we have seen in the last 40 years. Transfer of technology would be welcome and some countries like Japan say that they would like to go for brownfield expansions. We have ample land with our PSUs that anybody could get, create their own infrastructure and be a partner too. Posco is showing signs of returning again. Several investors were tapping SAIL and RINL for partnerships.
What’s your take on secondary steel producers?
Secondary steel players are the biggest losers in getting loans from banks. When the new resolution system came and the results were clearly visible, there was a realisation that this sector is not as bad as others. I think integrated steel making is not the only way to achieve the 300-million tonnes target. Secondary steel producers are more important. Their share is now 57 per cent and with right kind of facilities, this could go up to 70 per cent in three to four years. This could also create at least three times more employment than integrated steel making operations.
Steel industry has not gone up the value chain?
Talking of high-end steel used in automotive or defence sectors, the quantity may be very small. A lot of interest has been shown by prominent steel makers like Posco; even ArcelorMittal entered into joint ventures. Integrated steel plants would have 16-18 per cent share when we hit the 300 million tonnes target with the rest coming from expansion of existing plants involving technology transfer from private companies. Secondary steel sector share will inch upwards gradually. Finally, India’s market for steel would be the best bet for companies from South East Asia and Africa.
Aren’t you overtly optimistic about investments in the sector?
During 2004-12, there was a boom in the industry and it was a win-win situation for all. Later, the industry went through a phase of crisis, not only due to bad loans but factors like international prices that crashed. For instance, production in China was 30 per cent more than consumption. Now, things are changing for the better.
Import prices have become a big concern, especially high-grade steel meant for auto components?
The steel sector is deregulated and companies have the liberty to fix pricing. About 30-40 years back, there was no proper system of licensing and regulation. Now, the industry wants that there should be some regulation in place where investors would not face hurdles in committing investments in the country. There should be some checks and balances to meet the investors’ interest. So, we are working on resolving frequent price fluctuations of raw materials in the sector.
There’s hardly any progress in the ‘Make in India’ campaign?
Now we are producing only 106 million tonnes whereas our requirement was over 140 million tonnes. We will have to more than double the capacities. As far as the Make in India programme is concerned, investment demand is about Rs 10 lakh crore in the next ten years. Today, we import about 28 per cent machinery that’s not produced locally. In the recent mega steel conclave in Bhubaneswar, we were able to sign up investments worth `42,000 cr, which are in the pipeline.