Coronavirus pandemic may take a toll on domestic steel players' expansion plans, say experts

The outbreak and spread of the COVID-19 pandemic may adversely impact the expansion plans of domestic steelmakers, according to experts

Press Trust of India April 08, 2020 12:46:57 IST
Coronavirus pandemic may take a toll on domestic steel players' expansion plans, say experts

New Delhi: The outbreak and spread of the COVID-19 pandemic may adversely impact the expansion plans of domestic steelmakers, according to experts.

Indian players had been working on expansion plans in line with the government's ambitious target of scaling up the total steelmaking capacity to 300 million tonne per annum (MTPA) by 2030.

Many steelmakers in India have scaled down their production by up to 50 percent amid the nationwide lockdown in the wake of the pandemic.

Until now several ratings agencies have been pointing out that the spread of coronavirus has adversely affected the steel markets across the world including India in-terms
of prices, profit margins, affecting raw material supply chain, demand and building up of inventories.

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Representational image. Reuters.

According to Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, Icra, the outbreak and spread of the novel coronavirus will take a toll on Indian steel players' expansion plans.

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"Even before the outbreak, we have seen that some companies have deferred their plans of commissioning greenfield and brownfield projects," Roy said, adding that given the uncertainty that the industry is witnessing due to COVID-19 outbreak, it could have an impact.

Akash Krishnatry Senior Analyst, Corporates, at India Ratings said COVID-19 pandemic is expected to push expected India's steel capacity expansions by 3-9 months depending upon the severity, spread, duration of the virus along with the preventive measures adopted.

"Preventive measures like country-wide lockdowns and logistical challenges shall defer the expansion plans as steelmakers need to conserve liquidity in these times while cash flow from operations would be severely impacted.

"Also, continuing construction would also not be possible in these times, though overall project costs could also increase due to time overruns," he said.

Rashmi Rawat, Deputy Manager - Industry Research at India Ratings - is of view that domestic steel companies may take a relook at their capital expenditure (capex) plans.

"We have seen some companies deferring their capex plans in the last (fiscal) year itself due to lower demand. Going forward we expect steel production to get affected due to lockdowns, muted demand and lower commodity prices.

The profitability of steel companies will remain under pressure in FY21 until prices recover meaningfully," she said.

"In this background, we do not expect steel companies to go for capacity expansion... For expanding capacity there has to be an anticipated strong rise in demand which we are unable to foresee currently," she said.

Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research said, "The distinct slowdown in the domestic economy and low commodity prices clearly will be further aggravated by the COVID-19 lockdown. We expect a complete deferral of capital expenditure by the large steel companies in FY21 given the lack of visibility on a demand pickup and also their weakening debt coverage indicators."

Major Indian steel players like SAIL, Tata Steel, JSW Steel, Jindal Steel and Power Ltd (JSPL) and ArcelorMittal Nippon Steel (AMNS) India who contribute about 45-50 percent to India's total steel production annually have plans of ramping up their capacities.

While JSW Steel has plans of expanding its capacity in India to 45 by 2030, Steel Authority of India Ltd (SAIL) has already announced its expansion plan to more than double its capacity to 50 MTPA by 2030.

Similarly, JSPL looks to expand its Angul plant capacity to 20 MTPA by 2030, AMNS India plans ramp up its finished steel-producing capacity to 8.5 million tonnes per annum by the end of 2024 and Tata Steel has of plans ramping capacity of its Kalinganagar plant by 5 MTPA to 8 MTPA.

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