Indian steelmakers announce annual reports, war threatens shipments

Indian steelmakers announce annual reports, war threatens shipments

Major Indian mills' annual reports reveal improved production and sales performances for the 2002-2003 fiscal year. Steel Authorities of India (SAIL) meanwhile has financially recovered by seriously reducing its existing debt by Rs 700 crores (approx. $148million) to Rs 13'300 crores ( approx. $2.8billion) during 2002-2003. Energy consumption is increased, blast furnace capacity is increased, also the workfoce has been reduced, all providing cost saving to the company. These savings are all obtained by the modernisation program that was initiated towards the end of 1980s and completed towards the mid 1990s. the production is increased and so as the sales, with the help of rising demand from both the domestic and the international markets. The exports, performance of which was weaker in the previous fiscal increased seriously, particularly for hot rolled coil, GP coil, wire rods and billets. SAIL's export turnover solely in December-February period amounted to a Rs 400 crores. Another important Indian mill Tata Steel announced an 8% increase of sales during the fiscal year 2002-2003 at 3.8 million tons against 3.6 million tons recorded last year. Furthermore, total production reached 4.1 million tons for the first time breaking the 4 million tons record. Saleable steel dispatches of the company within this fiscal year rose by 287'000 tons to 3.9 million tons. Total 12 month sales of the company's Jamshedpur plant equalled to the 13 month total sales effected in the previous year, as a sign of better utilisation of assets. Additionally, production in the raw materials division also increased within this fiscal year. However, the ongoing war in Iraq will apparently start showing adverse impacts on the Indian steel industry as the freight rates for steel shipments will inevitably rise, carrying production costs to higher levels. Higher risk premiums for shipments effected to western destinations and particularly through the Gulf will have to be paid, and longer routes will have to be taken for security reasons, obviously resulting in higher freight expenses. On top of that, as the oil prices hike, the freight rates will grow even higher. Due to the same reasons the cost of imports of raw materials also rise due to freight rates. Tata steel, exports of which are chiefly concentrated on Southeast Asia and Far East do not foresee much trouble related to this situation. The in-house raw material supply of coking coal and iron ore also saves the company from such troubles. However, SAIL will have to suffer higher raw material costs as it supplies approximately 40% of total raw material consumption via imports. On top of these facts, the company's plans of expanding hot rolled production capacity of 12% this year, will also result in increased amounts of raw material requirement. For short term, scrap supply is also foreseen to get tighter as most vessels will probably act unwilling to deliver material to Alang due to the war in Iraq. Yet, in long term, companies expect scrap prices to dip once the deliveries start to pile up. Industry news, on the other hand, reveals price reduction possibilities in India for particularly hot rolled coil. Such reduction is pronounced by the effect of the slow down of Chinese demand due to high inventory levels built up so far. This situation might create another burden on the shoulders of Indian producers, by further narrowing down their margins. Still, the market expectations are for the Chinese demand to pick up in May, after the second period of safeguard quotas becomes operative.