Business

Rising prices to aid Essar Steel

‘U.S.-China deal to spur metals; quicker turnaround likely’

ArcelorMittal, along with Japanese partner Nippon Steel, is likely to financially turn around Essar Steel sooner than expected as steel prices have bottomed out globally and are likely to improve in 2020.

ArcelorMittal has formed a 60:40 JV with Nippon Steel to operate Essar Steel and its immediate focus is to enhance the operating capacity of the plant to 8.5 million tonnes per annum (MTPA) in the medium term and to 15 MTPA in the long term.

Discussion on plans

The board of the JV held a meeting to discuss turnaround plans. The company declined to offer any comment on the plans beyond its commitment to enhance the capacity to 15 MTPA.

Sanjiv Bhasin, director, IIFL Securities, told The Hindu, “Steel prices have already bottomed out and 2020 will be a great year for metal stocks with the trade deal between U.S. and China. Globally, steel prices have started improving and the same trend is expected in India with lower imports.”

However, the JV may find it difficult to ramp up capacity especially when the demand is yet to pick up in India. “Producing steel in India is easy but selling steel in India becomes difficult amid weak demand and depressed prices unless you sell it cheaper than your competitors to gain market share,” said an analyst.

Vivek Kamra, MD of Alvarez & Marsal’s performance improvement and restructuring business in India, told The Hindu, “There was a 25% rise in production to 7 MTPA while the company was still under IBC.”

Rising market share

It also helped that, as the IBC process was going on, the firm was not liable to pay interest during the moratorium period.

“They were able to offer a discount of about 2% compared with competition to enhance market share as the company saved around 12% on interest costs during the moratorium period,” a person close to the development said.

Analysts said the JV could have a competitive edge over Indian peers as it can raise funds from Japan and the global markets at sub-4% compared with double-digit interest costs paid by competitors in India.

Asked about competition from ArcelorMittal, a promoter of a private steel firm said, “We don’t see much of a difference. Earlier it was run by the Ruias, now it will be managed by ArcelorMittal. The plant remains the same.

“They may get technology from Nippon. We also have a global player as our technology partner. So, it hardly makes any difference to us.”

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Printable version | Feb 25, 2020 12:47:42 PM | https://www.thehindu.com/business/rising-prices-to-aid-essar-steel/article30405236.ece

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