Policy paralysis in the Indian government is the biggest reason behind a slowing in steel demand in India, claims Mumbai-based analyst Nirmal Bang Equities Pvt in a recent Bloomberg news report.
India’s leading steelmakers expanded capacities by 50% over the last two years, but when anticipated demand failed to materialise, the steel produced found itself languishing as unsold inventory.
Shares for Tata Steel fell 3.3% while Steel Authority of India Ltd (SAIL) shares dropped 3.2% to Rs.394.70 and Rs.69.75 respectively. Over the past year Tata’s shares have dropped 10% while SAIL’s have fallen 30%.
It’s certainly been a challenging period for Tata Steel as its expansion coincided with a decline in passenger car sales in India; and while SAIL hopes to expand its capacity by 60%, planned expansion costs could be higher than expected.
Tata Steel’s total debts are a staggering $10.5 billion while SAIL’s are $3.62 billion. The two steel producers’ debt-to-equity ratios are 153% and 54% respectively.
A more positive story comes from JSW Steel. The company’s output is likely to rise more than 40% thanks to improved iron ore supplies from the state of Karnataka, widening the company’s EBITDA margin from 17.06% to 17.39%.
Industry experts believe that JSW will out-perform its peers in 2014.
According to the Reserve Bank of India, the steel industry is responsible for 24% of bank loans and over 50% of non-performing advances.
Steel demand in India rose 3.3% to end March 2013 and the country’s central bank estimates that the Indian economy will expand by 5% through to March 2014.