Indian steel makers seek urgent financial package for survival

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Photo courtesy: SAIL

India’s beleaguered steel industry, battling sharp profit falls and financial stress blamed on dumping of steel products by China, japan and South Korea, has urged the government for a moratorium of payment of interest and principal amounts of loans and a revamping of debt to survive.

The Indian Steel Association (ISA) said it had written to the government and the Indian Banks Association for a financial package for the industry in line with similar support extended to the country’s textile and sugar industries.

Considerable investments in recent years have been made towards capacity expansion, modernisation and in new technologies and new product lines, and creation of supporting infrastructure, which led to large borrowings,” it said. On the other hand capacity utilization had fallen by around 10 percent on account of huge imports at unfair prices severely impacting the profitability of steel companies leading to financial stress, ISA said in a statement.

“It may be emphasised that this is not a problem of any individual company, public sector or private sector. The entire industry is suffering severe financial stress due to factors beyond its control,” it said.

According to the ISA, dumping of steel in the domestic market had seen cheap imports surge by more than 60 percent in the current financial year, accounting for almost 15 percent of local steel production. Profit margins of steelmakers had dropped by more than 40 percent, and as a result a large number of bank loans to the iron and steel industry are under stress and could soon turn into non-performing assets for the banks.

The severe erosion in profit margins has impaired the debt servicing capacity of steel producers. “Most of the steel companies are unable to ramp up their operations due to shortage of working capital, leading to a vicious cycle which may eventually lead to crippling their operations,” it said.

“The moratorium will be a short-term measure that will help ensure continued operations of the steel industry, while the various remedial measures are put in place and produce sufficient positive impact,” ISA said.

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