Indian steel makers look to gaining ground over China

Chinese steel exports turning uncompetitive; Indian firms focus on niches,

At a time when a slowdown in Chinas steel industry threatens to erode that nations competitiveness in the steel sector,Indian steel makers are re-drawing their strategies to cope with sluggish demand and squeezed margins.

As part of this,domestic steel mills are implementing cost saving measures,input optimisation,improving operational efficiency,early stabilisation of freshly commissioned units and an overall reduction of overhead costs to tide over the crunch.

In a report submitted to the government earlier this month,the Economic Research Unit (ERU) of the steel ministry has pointed out that although Chinese steel firms have managed to sell more abroad,especially to the Asean countries and the US,yet the nations steel industry is plagued by high financing costs,in part due to Beijings campaign to curb shadow banking.

Slowing growth has squeezed heavily indebted companies and provincial governments,raising concerns that Chinas credit explosion since 2008 could be headed for meltdown, the ERU said in the report.

Also,China has withdrawn export rebates on 400 products for the first time since 2008. The steel industry was one of the main target of the rebate withdrawal,since China is trying to force consolidation in the sector, the ERU said. The countrys exporters have complained to their government that export of hot rolled coils is now uncompetitive in Asia without tax breaks.

On the other hand,almost all Indian steel makers have jacked up their prices by Rs 1,000-1,200 in recent months to offset the impact of a falling rupee and a rise in global steel prices. With squeezed margins impacting their bottom line,the domestic steel mills have embarked on innovative ways to retain their margins.

Tata Steel has managed to save around Rs 1,100 crore in 2012-13 by implementing cost saving measures and spotting opportunities across the value chain. It has targeted the auto sector with high quality steel. In spite of falling demand,the company has managed to increase its market share,the ERU said.

Story continues below this ad

Even the countrys biggest steel producer SAIL is adopting a multi-pronged approach including improving efficiency and reduction of overheads to save Rs 5,000 crore in the next three years.

Another private sector company JSW has decided to import high grade steel while targeting to produce it,the ERU said.

Turnaround Strategy

* The steel ministrys Economic Research Unit says that Chinese steel makers are facing high financing costs even as they are exporting more

* The Chinese government has withdrawn export rebates for the first time since 2008,which has hurt exports to Asia

Story continues below this ad

n Indian steel makers,however,are first focusing on cutting costs and optimisation

* They are spotting opportunities in the value chain such as niche areas like the auto sector along with improvements quality and efficiency that have helped combat the slowdown