Steel companies' debt fall 21% on rebound in free cash flow

The sector is less leveraged than in FY09 when the last steel supercycle ended.

The consolidated debt of the steel companies has declined 21 per cent as of July-end to ₹2 lakh crore against ₹2.6 lakh crore in the same period last year.

The industry’s consolidated borrowing has plunged to a nine-year low. The industry’s consolidated borrowings per tonne of installed capacity was substantially healthy at $180 tonne in July 2021, shrinking by almost half from $350 a tonne logged in November 2008.

Steelmakers started to aggressively deleverage since the second quarter of last fiscal given the strong earnings growth and cut in capital expenditure following the uncertainty over the Covid pandemic, said ICRA study.

Domestic steel companies are now significantly less leveraged than in FY09, when the last steel super cycle ended, following the global financial crises.

Upbeat on growth

Jayanta Roy, Senior Vice-President, ICRA said domestic steel demand is expected to grow to about 12 per cent in this fiscal, on a low base, while the output will increase by 14 per cent due to a rise in net finished steel exports.

ICRA expects net exports to increase to about 8 mt in this current year from 6 mt logged in last fiscal, as domestic mills try to step in the opportunities created by curbs on exports levied by China.

The fresh capacity of 8 mt made operational by JSW Steel and NMDC will be absorbed by incremental steel consumption of 12 mt expected in FY2022, pushing up the industry’s capacity utilisation rates to 78 per cent in this fiscal from 72 per cent last fiscal.

The production cost of steel companies is expected to come down by about $50-55 tonne, partly compensating for the cost increases emanating from costlier coking coal purchases.

Demand

Domestic steel demand contracted by 1.2 per cent sequentially in the seasonally weak peak-monsoon July and further softened in August with roll-back in price increase announced. Earnings for primary producers are expected to moderate somewhat sequentially in the September quarter. However, mills would have better control on steel prices in the third quarter as demand picks up in the run-up to the festive season, said Roy

The Hindu Business Line - https://www.thehindubusinessline.com/markets/commodities/steel-companies-debt-fall-21-on-rebound-in-free-cash-flow/article36247972.ece