Indian Steelmakers Push for 25% Safeguard Duty on Imports
UditVani, News Desk: The steadily declining cash reserves of India’s steel producers over the past three years have sparked worries about their capacity to manage current debt obligations or secure new financing to meet capital expenditure requirements.
Tata Steel’s Reserves Drop 45%
Tata Steel Ltd.’s cash and cash equivalents declined by 45% between FY22 and FY24, following record highs driven by windfall gains during the COVID years, fueled by elevated steel prices. In FY24, the company’s cash reserves stood at ₹8,677.7 crore, marking a substantial reduction of 45% compared to FY22 levels.
As of September 30, 2024, Tata Steel’s cash reserves covered less than 15% of its total gross debt, underscoring the financial strain on the company.
Cash reserves enable companies to efficiently manage daily operations, settle liabilities, address unforeseen costs, and pursue growth opportunities without financial difficulty. These reserves are typically built through operational profits, asset sales, equity funding or borrowings.
Subsidized Chinese Steel Imports Hit Domestic Producers Hard
This drop is attributed to a post-COVID property crisis in China, which led the world’s largest crude steel producer to boost exports in an attempt to address overcapacity. The surge in low-priced steel imports from China into India reached an eight-year high in December, severely impacting the profits of domestic steel producers who struggled to compete with the Chinese pricing. The Chinese government heavily subsidizes its steel at various stages of production.
Between 2022 and 2024, imports of Hot Rolled Coil (HRC) from China jumped 28-fold while finished steel imports from China increased 2.4-fold.
Analysts maintain a cautious stance on the domestic steel industry’s outlook, citing weaker-than-anticipated demand recovery following the festive season, persistently low steel prices, restricted export opportunities, and a tepid market response to China’s economic stimulus measures.
Indian Steelmakers Push for 25% Safeguard Duty on Imports
Amid mounting concerns over the surge of low-cost steel imports, Indian steelmakers are pressing for the introduction of a safeguard duty of up to 25%. This measure is viewed as essential to shield domestic manufacturers from the intense competition posed by cheap foreign steel, which is entering the market at prices below production costs.
Sandeep Poundrik, Secretary of the Ministry of Steel, announced last week that a decision on the proposed safeguard duty is expected by the end of January. According to Poundrik, the Directorate General of Trade Remedies (DGTR) is slated to submit its recommendation by January 22. Following the DGTR’s assessment, the final decision will be made jointly by the Ministry of Commerce and the Ministry of Finance.
Tough Decisions on Growth
Steel manufacturers are facing a challenging dilemma- shrinking cash reserves and declining profitability are limiting their capacity to undertake large-scale capital expenditure projects, including brownfield expansions.
In November, T.V. Narendran, Global CEO and MD of Tata Steel indicated that the company is reconsidering its new capital expenditure plans due to persistent low-cost imports and the resulting price pressures in the domestic market. Narendran remarked that the current EBITDA per tonne from Indian steel operations does not make significant investments in expansion economically viable.
Global Investments in UK and Netherlands
Tata Steel’s capital expenditure commitments extend beyond India, encompassing significant investments in its UK and Netherlands operations.
In the UK, the company is investing £700 million in its Port Talbot steelworks to transition from traditional blast furnaces to electric arc furnaces (EAFs). The UK government is supporting this effort with a subsidy of £500 million.
In the Netherlands, where Tata Steel operates profitably at the EBITDA level, the company is negotiating with the Dutch government for assistance with an anticipated $5 billion investment. This funding aims to transform the IJmuiden steelworks to produce steel using EAF and direct reduced iron (DRI) technology, incorporating hydrogen as a key fuel in the steelmaking process.
₹10,000 Crore Annual Investment Plan for India
Tata Steel aims to invest approximately ₹10,000 crore annually in India to increase its production capacity to 40 million tonnes per annum (MTPA). This expansion includes projects at its Jamshedpur, Kalinganagar and Neelachal Ispat Nigam plants, as well as its new greenfield electric arc furnace (EAF)-based facility in Ludhiana.
Odisha has emerged as the largest investment destination for Tata Steel in India, with a cumulative investment exceeding Rs 100,000 crore over the past decade. In September 2024, the company successfully commissioned a 5 MTPA blast furnace at its Kalinganagar plant. With this addition, the crude steel capacity at Kalinganagar is set to increase from 3 MTPA to 8 MTPA.
To strengthen its position in the downstream market, the company has reorganized its corporate structure by merging certain subsidiaries and has outlined additional investments to enhance its downstream production capabilities.
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