JSW, Tata in race for top slot in steel industry

Two steel majors look at capacity expansion, as insolvency process picks up steam for 5 firms

The largest steelmaker in the country, JSW Steel, is aggressively ramping up capacity to  retain top slot, while the number three player, Tata Steel, too, has its agenda set to spring back to its earlier leadership position. 

The race has heated up even as the Reserve Bank of India (RBI)-mandated insolvency process has gained speed for five other majors in the sector — Essar Steel, Bhushan Steel, Bhushan Power & Steel, Monnet Ispat & Energy, and Electrosteel Steels.

The two steelmakers will use a mix of organic and inorganic routes to achieve their goals. At present, JSW Steel, with a capacity of 18 million tonnes, followed closely by public sector steel major, Steel Authority of India (SAIL) with a capacity of 17.5 million tonnes. Tata Steel has a capacity of 12.7 million tonnes. 

By the end of the year, however, SAIL is expected to complete its expansion and modernisation programme at the Bhilai steel plant, which will take its capacity to 21.3 million tonnes. No further expansion has been announced by SAIL.

But, JSW Steel and Tata Steel are both ready to cash in on the opportunities in the domestic market. 

JSW Steel will be ramping up the capacity from 18 million tonnes to 23 million tonnes by 2020. The capex programme for this, along with a few other strategic projects, is pegged at Rs 26,800 crore.

“We have taken advantage of opportunities at the right time and yet kept the debt profile balanced. We have a target of taking the capacity to 40 million tonnes by 2030, which would be through a mix of organic and inorganic routes,” said JSW Steel Director (commercial and marketing) Jayant Acharya.

Tata Steel, which was the largest steelmaker in the private sector in India till about 2009, also has its agenda set. It already has approval for adding another million tonne to the existing 9.7 million tonne at Jameshedpur and plans to take up the second phase of expansion at Kalinganagar in the near term. 

But Tata group’s new chairman, Natarajan Chandrasekaran, has set aggressive growth targets for Tata Steel in India.

At a press conference to announce the Tata-Thyssenkrupp joint venture, Chandrasekaran had said a deleveraged Tata Steel would be better positioned to grow faster and double capacity over the next five years, organically or inorganically. That would mean taking Tata Steel’s capacity to 25.4 million tonnes by 2022.

“Till around a decade back, both Tata Steel and JSW had similar steel making capacities in India. Thereafter, JSW increased the size of its steel making operations at a faster rate than Tata Steel through both organic and inorganic routes. Currently, both companies are in the midst of ramping up their operations further through implementation of brownfield expansion projects,” Jayanta Roy, senior vice president, ICRA, said.

Growing in India makes sense for the companies because there are some positive indicators. Domestic demand has grown 4.4 per cent in April-August 2017 compared to 2.6 per cent in FY2017; domestic steel prices have grown 14 per cent since June 2017, steel exports have reported a 57 per cent year-on-year growth during April-August 2017 and capacity utilisation has improved to above 80 per cent during the current financial year, according to ICRA. 

Industry sources point out that it may not be possible for Tata Steel to double capacity through the organic route alone if the deadline of 2022 is to be met. Tata Steel has said it would look at opportunities thrown in by the insolvency process. Though it hasn’t named specific assets, but it hasn't ruled out bidding for assets in the east or west in the country. 

Among the major assets in the east include Bhushan Steel while the west would include Essar Steel. JSW Steel has said that it would bid for Bhushan Steel, Monnet Ispat & Energy while Essar Steel wasn’t ruled out either. 

An acquisition of any of the bigger assets like Bhushan Steel with a capacity of 5.6 million tonnes or Essar Steel at 10 million tonnes could change the pecking order of the industry.