S&P Sees Some India Steelmakers Cutting Output, Slowing Ramp-Ups

  • Steel Authority of India, Tata Steel seen most vulnerable
  • Indian producers pressured by high debt levels for expansion

Some steel companies in India, the world’s fourth-largest producer of the alloy, may cut production because of pressure from global oversupply and weak domestic demand, according to Standard & Poor’s.

Mills with high costs may cut output and those with new plants may slow ramp-ups to avoid the build-up of inventories, Mehul Sukkawala, a Singapore-based senior director at the ratings agency said in an interview Monday. “This is because the current environment is not expected to turn around in a short time.”

Prices in India slumped to a six-year low in September due to a surge in low-priced imports from China, which has flooded the global market with supply because of a slowdown in domestic demand. This prompted India’s government to raise import taxes in August and levy a temporary 20 percent safeguard duty in September.

These protectionist measures, though beneficial in the near term, will not be enough to preserve profitability of the producers, S&P’s Sukkawala said in an e-mail. “We expect the global excess supply will take at least few years to address as it involves difficult decisions of shutting down capacities with weak cost profile globally.”

Chinese Supply

China’s steel exports surged in 2015, propelling global steel prices 25 percent to 50 percent lower, according to Bloomberg Intelligence analysts Zhuo Zhang and Kenneth Hoffman. A plunge in Chinese steel profits and a decline of about 5 percent to 8 percent in domestic steel demand may force many of the nation’s steel mills to close or consolidate, removing exports from the global market and allowing prices to begin to recover, they said.

India’s steel production for the April-October period fell 0.4 percent to 53.32 million metric tons, while demand rose 4.5 percent to 46.21 million tons, according to initial data from the Steel Ministry. Imports rose 42 percent to 6.68 million tons during the period.

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