The planned privatization of government run steel mills Rashtriya Ispat Nigam Limited (RINL) and NMDC Limited’s 3 million mt greenfield steel mill project is likely to be impacted by domestic steel companies reviewing future capital expenditures and the crash in share prices of steel companies following the government’s imposition of 15 percent export tax on steel products, SteelOrbis learned from industry circles on Tuesday, May 24.
The industry circles said that, with an estimated 18-20 million mt of export allocations diverted to the domestic market as overseas sales options become squeezed by the imposition of the export levy, plans for increasing domestic capacities will need a re-look, factoring in new supply-demand forecasts.
Domestic steel companies like JSW Steel and Jindal Steel and Power Limited (JSPL) have already stated that a review will be made of future capital expenditures.
According to an official at a private mill, the prospect of the Indian steel market entering an oversupply zone in the medium and long term as export options dry up will impact valuation of bids that prospective investors could submit for the privatization of RINL and NMDC’s steel mill.
At the moment, both the domestic market and exports are down and steel companies will need to cutback output from existing mills to balance the changed demand-supply dynamics, and hence there will be little economic rationale to go in for capacity expansions either through greenfield or brownfield investment routes, he said.
A steel sector analyst said that it will be very difficult for domestic steel companies to compensate for revenue realizations from sales overseas with matching realizations from local sales, which risks lower cash flows. Lower cash flows will in turn impact the pace of implementation of capacity expansion projects already announced by Tata Steel, ArcelorMittal, JSW Steel, and Jindal Steel and Power Limited (JSPL).
And if the companies’ own projects slow down, it can be assumed that interest in acquiring new assets through participation in the government’s privatization program could also be lukewarm, he said.