Steel Price War to Favour Banks
The Hindu Business Line has reported that, a price war has started among steel manufacturers and companies (who have defaulted on their Bank Loans) dropping the steel prices to gain market share amidst weak demand. This also kicked off an uneven competition that threatens the survival of efficient steel producers.
Banks recently declared loans extended to large steel producers such as Essar Steel and Bhushan Steel as non-performing assets and are trying to find a suitor for them.The industry is fighting for minimum import price and anti-dumping duty as protection against imports. Some of the companies are selling steel much below MIP in India. While MIP of hot rolled (HR) coil is ₹ 35,000 a tonne, it is being sold at ₹ 25,000-26,000 a tonne in the domestic market. Similarly, long product prices have dipped by ₹ 5,000-6,000 a tonne to ₹.26,000, much below the pre-MIP level of ₹ 32,000.The current trend has put pressure on companies such as Tata Steel, JSW Steel and SAIL, which have expanded their capacity and are incurring huge interest costs.
Our view: The conflict between the steel manufacturers and the companies end up in a significant drop in the steel price and market shares. Though the steel sector is affected, it is good news for end users in auto sector and construction sector. Moreover the banks will get back some dues from the steel industries and hence we expect the NPAs to ease for certain banks in the next quarter. Investors should stay away from steel in the near future.