Steel woes may hit Usha Martin

High debts and big losses since 2014-15 have forced steel maker to sell its wire, wire rope business

Distressful working of the steel industry till the middle of 2016 is likely to claim a victim of a significant portion of business of Jharkhand-based Usha Martin Limited. High debts and big losses since 2014-15 despite large monetisation of non-core assets have forced the integrated speciality steel manufacturer to consider the option of selling its storied wire and wire rope (WWR) business. The company has taken the first step by appointing a consultant to “evaluate the possibility” of disposing of the business.
 
Admired globally for the very high quality WWRs that Usha Martin makes, its products have stood the test of time in their large-scale applications in oil exploration and drilling projects, mines, ropeways and bridges in any number of countries, including India. It also has facilities to make elevator, general engineering and fishing ropes, conveyor cord and structural systems. The company, which started making WWRs in Ranchi nearly five decades ago, has over the years acquired manufacturing and client servicing facilities in Hoshiarpur (Punjab), Bangkok, the UK, Holland and Dubai.

 
Long bad steel market apart, falling demand for WWRs and strands from the global oil and mining industries, which till recently were victims of low commodity prices and routine WWR price undercutting by the Chinese industry nursing overcapacity, have put Usha Martin in a spot. Recall oil caving in below $30 a barrel in January 2016, marking a 72 per cent plunge from the 2014 peak of $108. In the wake of price collapse, consultant Wood Mackenzie has forecast as big a cut as $1 trillion in planned spending on exploration and development of resources by the global oil and gas industry.

 

As oil companies will have to venture into increasingly rugged places to prospect for oil, a minimum price of $60 to $65 a barrel will justify big investments. Brent crude is selling at $50.50 a barrel. This remains a major cause of concern for WWRs manufacturers, including Usha Martin. Investment in opening of new mines in Australia, Brazil or African countries is largely dependent on Chinese appetite for minerals which in turn is decided by stimulus provided by Beijing to infrastructure and house building sectors. Worryingly again for the WWR industry, Bloomberg Intelligence Economics has forecast slowing of growth in Chinese investment in infrastructure from 17 per cent in 2016 that boosted the country’s GDP growth to 6.7 per cent to about three per cent by 2027.

 
Usha Martin ventured into WWR making as a standalone business in 1961. It did not take long for the founder and chairman emeritus, Basant Kumar Jhawar, to realise that only from high quality steel quality ropes can be made. This should better be made by the company itself than stay dependent on supplies from outside. The company’s speciality steel plant thus came up in Jamshedpur in 1974, which over the years has expanded to a one million tonne (mt) plant. While the major portion of steel production is sold in the market, nearly a third of the output is used by the company itself for making high-value WWRs, strand and bright bar. Usha Martin steel sold in the market finds application in sectors such as automotive components, railways, defence and engineering.

 
The integrated Jamshedpur mill sources iron ore from its captive mine in Jharkhand and makes steel using blast furnace and direct reduced iron (DRI) kilns as starting points. The company had a setback when its captive coal mine Kathotia, possessing high grade fuel, was deallocated under court order. Kathotia was subsequently acquired by Hindalco. Usha Martin is now developing coal mines at Brinda and Sasai, which it got at auctions to feed its DRI and power plants. The new coal mines should be operational by 2019-20.
 
In the first three quarters of 2016-17, Usha Martin made a loss of Rs 206.18 crore on the back of a loss of Rs 404.43 crore in the whole of 2015-16 and Rs 292.41 crore in 2014-15. The company had net debts of Rs 3,731.86 crore, including working capital loans as on March 31, 2016.