Steel Industry is facing problems of debt and cost-competitiveness. Coal India is awash with coal. Where are things heading?

Where is Indian Steel Industry heading?
The article says that Chinese traders, who can hold large inventories due to ultra-low cost finance, regularly rig the market by creating short-term shortages that only they can exploit. Chinese producers have cut costs (eg by low-cost finance but also low input costs, operational or tech improvements) and strengthened their cost position further with huge economies of scale. They have also invested surpluses to create profitable sidelines. As countries abandon their steel production, space is taken by the Chinese and not say Indian steel producers who have large idle capacity. This is because the latter are unable to compete on cut-throat prices. In fact, they are struggling even to maintain basic operations in India.

The author maintains that Chinese stranglehold over world steel, and their ability to maintain ultra-low prices, is done largely without Govt subsidy. Indian producers are in trouble and need to think afresh on how to reduce unit costs and innovate on product lines. They need decent profits to tide over erratic trading and have a serious debt problem (see link 1). Tata steel is downsizing overseas operations to reduce debt. Yet, despite a global price rally, it ends with a 6% increase in debt! (see link 2). Sky-high coking coal prices (imported from Australia) have wiped out most of the gains from a "good year". Decent profits figures, but what about a bad year?

Steel Authority of India (SAIL)
SAIL has high costs. Predictably it's dipped into losses; revenues have steadily fallen despite better volumes; profits margins sunk to 3%, and debt doubled over 4 years (see link 3). Expansion and modernisation (incl its mines) - for higher profit margin/ higher value addition business- is a bet to secure its future.

SAIL has moved on:
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*  Extra capacity of 67% will happen by 3/2018;
*  Robust 20% revenue growth & 2.1 mt new capacity expected next year;

*  Cost reductions drive: 1) shift to new efficient units; 2) retrench inefficient mills; 3) VRS of 1.2% staff so far; 4) no-hiring reduces staff by 13% over 2yrs (see link 4); 5) 10% expenses cut from lower power, coking coal & other operating costs incl inventory (see link 5); 6) improved mining ops.

New modernized plants are coming on stream and adding value. Specialist Rail mill in Bhilai for extra long rails benefits from rail infra build-up. JV with ArcelorMittal (later this year) will launch SAIL in the dynamic auto sector, where it had no presence earlier.  SAIL's Rourkela will supply to a new automobile unit under JV AM by 2018 (see link 6).  3 plants to be sold @ Salem, Durgapur and Bhadravati. (see link 7) due to high input costs; to reduce debt and save Rs 525 crore (see link 7a). SAIL expects to export over 2 mt.

Govt of India Steel initiatives
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1. Open new mines near steel factories - early clearances

2. Expedite logistics infrastructure - JV for funding

3. Rationalize coal and other linkages

4. Reduce power and coking coal costs and improve their availability

5. Sale of SAIL loss-making plants - even if politically difficult.

6. Encouraged SAIL to enter JV to make auto-steel.

7. Ultra-mega steel plants (Rs 18k crore each) for SAIL and NMDC Ltd (PSU) at Bastar, CH. All inputs and rail link to be provided (see link 8)

8. Encourage R & D for SAIL, PSUs and others - eg. defence steel for import substitution.

9. SAIL cleared for a new phase of capacity build-up (x 2.4 to 50mt by 2025)

10. MSTC / Mahindra for Auto Shredding plant & other scraps (Delhi) - recycle waste, improve road build, reduce imports, lower cost to Indian steel producers by monetizing waste.

11. Car scrappage scheme. Infra spending on rail, urbanization, etc.

12. Export promotion to benefit SAIL and others. SAARC rail links. Sagarmala plans for export competitive prices.

13. Trade policies to stop a surge of cheap imports. Work with banks to manage debt burden.

14. Steel producers to have first right of refusal to iron ore.

Coal India is awash with coal. Where is it heading?
Coal India is hunting overseas for cheap, reliable coking coal. South Africa has huge amounts and is a willing partner. Coal India will continue to expand domestic production (till FY 18 @ 11%pa), and is undeterred by surplus stock (which have fallen anyway, see link 9). It is looking at future domestic demand and sales to Bangladesh.

Power ministry plans to stop all public sector coal imports in 4 months (see link 10). Improved coastal shipping and reduction in rail freight costs to South and West India power plants will shift demand to indigenous coal. Coal India is improving its receivables and investing in other ventures abroad (see link 11). Mozambique appears as a strategic project (FDI) for better country relations. Indonesia is perhaps diversification (see links 12 & 13).

Coking Coal
Coal India produces 54m tons but this is not enough: "most of the steel industry’s requirement for coking coal is met by imports. Demand is poised to rise from 50 mt to 160 mt by 2030," (see link 14). 

Coal India is looking at South Africa (MOU done) and Australia (not clear): "It's the right time for such acquisitions. Once Coal India secures supply of coking coal from South Africa, India’s forex outflow will come down. Australia is logistically cheaper."

SAIL staff to lose perks as part of cost-cutting