Insolvency shakeout: New owners for steel assets to ease supply issues

The supply-side wheel of the domestic market in steel is set to roll a lot more smoothly.

Three out of five companies in the segment which were taken to the National Company Law Tribunal (NCLT) for being insolvent are now on the verge of getting new owners. 

Over the past few weeks, the Neeraj Singhal-promoted Bhushan Steel has found its new owner in Tata Steel. The Sandeep Jajodia-led Monnet Ispat and Jharkhand-based Electrosteel Steels await a final decision – frontrunners in their cases being the JSW Steel-AION consortium and Anil Agarwal-led Vedanta Resources, respectively. “It would be a huge relief for OEMs (original equipment manufacturers), who have been facing supply shortage for about one and a half years,” Nikunj Turakhia, president of the Steel Users Federation of India (Sufi) told Business Standard.

Utilisation is expected to move up in the coming months, said industry officials. “Demand has been picking up and the supply shortage pushed up prices to some extent,” said a Mumbai-based trader, on condition of anonymity. “With the supply side likely to ease now, domestic prices could also come under some pressure.”

A report from the Joint Plant Committee, arm of the steel ministry, says consumption of total finished steel was 90.7 million tonnes during in 2017-18, up 7.9 per cent over the same period last year. Compared to March 2017, the average market retail price of hot-rolled steel in Delhi was 41.6 per cent up in March 2018.

There is more coming on ownership switches. Essar Steel’s 10 mt plant at Hazira in Gujarat and Bhushan Power & Steel’s 3.5 mt one in Odisha are up for sale. While ArcelorMittal and Numetal are in the race for Essar’s (Ruia group) asset, the UK-based Liberty House and Tata Steel are eyeing the other, Sanjay Singhal-led, entity. Along with easing on the supply side, industry officials are expecting the assets to get managed professionally, thus strengthening the domestic market.

“There will be no job loss — the assets would fall into the hands of financially strong owners. We might see some rejig at the managerial level but, overall, this restructuring would augur very well for the industry,” said Sanak Mishra, secretary-general of the Indian Steel Association.

Anil Agarwal, chairman, Vedanta Resources, had earlier told Business Standard, “We look forward to working with the existing workforce at Electrosteel. Though the business is not doing well, the team is good. We don’t plan any job cuts.”

It is not clear if Vedanta would face a hurdle in this acquisition after the much-reported issues at its Tuticorin (Tamil Nadu) copper plant. The brokerages feel the eligibility criteria to pick up an NCLT asset should not be linked with a company not having taken approvals for other assets.