Steel Authority of India (SAIL), the public sector steel behemoth, is now turning to exports to replace a missing domestic market. SAIL has traditionally depended almost exclusively on domestic demand for sales. But it entered the lockdown with built-up inventory of 2 million tonnes of steel and the company has been finding new buyers overseas this year to clear stock.
SAIL produced 16.15 million tonnes (mt) of steel in FY20, highest among all Indian producers. The 1.18 mt that is exported last year, although only a fraction of total production, was its highest ever. In the first two months of this fiscal, however, SAIL ramped up exports and built new customer relationships abroad, especially in China, Vietnam and Southeast Asia.
“Domestic demand is slowly coming back," Anil Kumar Chaudhary, Chairman, SAIL, told Mint. “We’re seeing some construction projects start again and some governments, like Telangana, are encouraging work restarting. They’ve started booking demand for steel and cement. Many auto companies like Hyundai, Maruti have started production and Ashok Leyland is talking of starting production very soon. We are also supplying 1-1.5 lakh tonnes of steel to railways every month and these despatches happened through the lockdown."
The focus on exports comes even as steel production itself has fallen in India, and export sales are becoming a large portion of a smaller pie. According to the data released by Joint Plan Committee, India’s crude steel production fell by a record 69.5% y-o-y in April 2020, with all of the country’s manufacturers producing only 2.8mt on steel in the first full month of the lockdown. Demand for steel contracted by 91% y-o-y in April, in line with a sharp fall in demand from user industries like construction, real estate, automotives and infrastructure, which account for 80% of the steel consumed in India.
“Exports from China, South Korea and Japan into India have fallen," Chaudhary said, and Indian steel companies are hoping they can regain markets where they had been earlier substituted by imports. “Domestic demand will pick up and export demand will continue to be there for a few more months. We are operating our plants at 45% capacity and we are fine-tuning our monthly production so that we can sell whatever we produce and about 25-30% of the 2mt inventory." Chaudhary said that export prices have fallen by 5-10% from the highs of March and domestically, they have had to make allowances for buyers. “We’re giving buyers some adjustments and additional benefits, like interest-free credit, road delivery till their factories of certain products, quantity-linked discounts," he added.
A recent report from Edelweiss Securities said that SAIL would have an acute cash management problem if it goes ahead with the debt repayment plan of ₹3500 crore for FY21 and its cashflow from operations would be insufficient to repay the interest cost. SAIL’s borrowings have crossed ₹52,000 crore in April. The brokerage forecast an operating loss in the first half of this fiscal. To this, Chaudhary said: “During this period, whose borrowings have not gone up? As soon as domestic demand picks up, we will be able to bring down borrowings. I am keeping all my lenders informed about status of borrowing and the steps we have been taking and they appreciate that this is a difficult period for everyone, including SAIL. We have not availed of RBI’s moratorium on loan repayments. We have a credibility in the market and a reputation of not asking for any adjustment or postponements of payment; we will meet all our repayment obligations."
“We are not troubling small contractors, we make sure that we pay our MSME vendors on time," Chaudhary said, on cost of raw materials and cost-cutting measures. “But in large contracts. where we can renegotiate terms, postpone the quantity that we are buying or lower the cost, we are doing that. Wherever force majeure is in the contract, we are invoking it if is necessary," he added.