Japan says MIP on steel products violates WTO rules

Japan-says-MIP-on-steel-products-violates-WTO-rules

At the third meeting to review the Comprehensive Economic Partnership Agreement, Japan on Thursday protested against the imposition of a minimum import price(MIP) and safeguard duty on steel products.

The Japanese delegation – headed by Deputy Minister of Foreign Affairs Keiichi Katakami – said the imposition of MIP restricted entry of certain products into India and this was in violation of GATT Article 11, Paragraph 1. The MIP was notified on February 5 for six months ended next week. The government is yet to take a call on whether to discontinue or re-impose it.

A person close to the development said Japan wanted an early resolution on the matter. Besides, it also warned India that the safeguard duty imposed on hot-rolled flat and coils was in violation of a WTO agreement. Similar concerns were raised by South Korea even as the Indian industry had wanted steel products to be excluded from the ambit of free trade agreement (FTA) with Japan and South Korea. These countries were flooding the Indian market, taking advantage of concessional duty rates.

The Japanese side also flagged taxation related issues, including imposition of minimum alternate tax in special economic zones.

During Thursday’s meeting, protection of agricultural geographical indicators also came up for discussion.

The India-Japan CEPA came into force on August 1, 2011. Japan and India are the second and the third largest economies in Asia. During the meeting, India expressed apprehensions that after four years of CEPA, the trade engagement was below potential. Japan’s share in India’s imports was around 2.3 per cent and India’s share in Japan’s imports has remained insignificant at 0.8 per cent.

India, on its part, raised the issue of export of Surimi fish to Japan, which was not being treated as that of Indian origin. The fish was accorded a preferential tariff of 1.9 per cent as an imported preservative was being used to preserve the protein content. India claimed the value of preservative was less than half a per cent of the overall cost of the product.

Source

Flat steel production up 48% in Apr-Jun: Essar Steel

Flat-steel-production-up-48%-in-Apr-Jun-Essar-Steel

Ruias-promoted Essar Steel today said its flat steel production rose by 48 percent to 1.22 million tonnes (MT) during the April-June quarter this fiscal from 0.82 MT during the year-ago period.

Iron ore pellet production too grew by 58 percent to 2.02 MT against 1.28 MT during the quarter under review, Essar Steel said in a statement.

“By the end of FY 2016-17, Essar Steel India expects to record a marked increase in its capacity utilisation and produce 80 percent of its rated capacity,” it added.

The firm’s efforts to de-commoditise its steel production and focus on developing value-added grades are bearing fruit.

In the last one year, it has developed 17 new grades, which have given it a first-mover advantage in many industrial segments.

In the quarter ended 30 June 2016, it developed three new grades one each in the Automobiles, Yellow Goods and Defence segments.

The new grades enable Essar Steel customers to substitute imported products with indigenous Made in India steel and make substantial savings. The adoption of multi-modal transport to move its products has helped the company achieve better price realisation and improved logistics, it said.
Commenting on the performance, Essar Steel MD and CEO Dilip Oommen said: “Over the last few months, we have taken several steps to strengthen our operations. We have also been able to maintain higher operating margins.” In addition, the markets have been stable and customer response has been encouraging. This gives the firm confidence to aim for full production going forward, he added.

With the natural gas price plummeting to USD 6 per mmbtu (from a high of USD 20 per mmbtu), Essar Steel has been able to contain cost, improve margins and ramp up production. The company is looking at restarting all its gas-based DRI units in the current fiscal, it said.

Essar Steel’s downstream facility in Pune clocked its highest ever quarterly production. PPGI production of 78,000 tonnes in June quarter this fiscal is higher by 55 per cent than production in the same period last year. The facility is operating at 100 per cent capacity utilisation.
Essar Hypermart has recorded a 40 per cent growth in sales volume. The SBU sold 2.89 lakh tonnes of finished steel products, as against 2.07 lakh tonnes in the same period last year.
The Hypermart expects to earn USD 1 billion in revenues by the end of the current fiscal and contribute close to 30 per cent of Essar Steel India’s consolidated sales, it said.

Source

Tata Steel looks for Europe JV, analysts see talks with Thyssenkrupp

news-2

Mumbai: Tata Steel in an announcement made late Friday evening revealed an alternate plan to look for a joint venture partner for its entire European business as sale talks for its UK assets hit a roadblock due to Brexit (Britain’s decision to exit the European Union).

On 30 March, Tata Steel said it will exit completely from its UK steel assets in a bid to cut losses. This was followed by a sale process, and on 9 May, the company said it has shortlisted seven bidders interested in buying all of its UK steel assets. However, the deal process hit a roadblock as Britain voted to leave the European Union. Europe markets contribute significantly to Tata Steel UK’s sales volumes and now there is uncertainty over new trade policies between the UK and Europe.

In Monday’s early morning trade, Tata Steel stocks reacted positively to the decision. At 9.38am, Tata Steel Ltd was trading at Rs.322.20 on BSE, 1.1% up from previous close, while India’s benchmark Sensex index rose 1.7% to 27,590.47 points.

After a board meeting on Friday, Tata Steel said it had decided to evaluate “alternative and more sustainable” solutions for the European business. “Consequently, Tata Steel has now entered into discussions with strategic players in the steel industry including Thyssenkrupp AG,” the statement issued late on Friday night said. The company said discussions have been started for a JV, however, deal talks are at a preliminary stage.

Street view on Tata Steel’s latest decision has been a mixed bag. However, most believe joint venture with Thyssenkrupp would be significant to watch for.

“Brexit has possibly impacted prospects of sale of Port Talbot steel plant in the UK. Tata now exploring possibility of JV with another steel player, such as Thyssenkrupp. Believe this is incrementally negative as a JV would only partly reduce UK exposure,” foreign brokerage firm CLSA said in its note on Monday. Port Talbot is Tata Steel’s main steel making facility in the UK. The brokerage maintained a sell on the stock.

Certain other brokerages like Credit Suisse expect an upside on the stock if deal talks fructify. “While talks still at preliminary stage, this could create an upside for the stock,” Credit Suisse said in its note on Monday. In the note, the brokerage added that joint venture synergies with Thyssenkrupp could be at $550 million.

To be sure, the company is likely to continue sale talks for its UK steel assets in parts, in parallel to its fresh attempts to find a joint venture partner for the entire Europe business, including the UK assets. However, the sale for UK assets may take longer on account of uncertainties over Brexit and its implications.

“Believe slow progress on UK sale is more or less priced in,” Credit Suisse said in its note. The brokerage maintained outperform on the stock.

Domestic brokerage firm Religare Capital also sees the development as a positive for the company. “The JV indeed may have the synergy benefits,” said Pritesh Jani, analyst, Religare Capital Markets Ltd, in an email note on Monday.

“The joint venture success just like the sale success will depend on outcome on British Steel Pension Scheme (BSPS), discussions with UK trade unions, support from UK government. The interesting thing (is) will the UK govt. under current circumstances for 1,30,000 employees under the BSPS scheme change the pension rules (for a single company) so that it helps a German company, ThyssenKrupp?” Jani asked in the note, adding that it will be a long-drawn process.
Source

India adopting trade protectionism to boost domestic steel industry, says China

news-1

Beijing: India is promoting its steel industry with trade protectionism and making China a “primary victim” of trade investigations, China’s official media alleged today and asked New Delhi to adopt “open-mindedness” towards the world’s largest steel producer.

“It seems India is seeking to boost its domestic steel industry with some help from trade protectionism, making China a primary victim of Indian trade investigations,” an article in the state-run Global Times said.

“It is true that protecting Indian steel firms from intense international competition can buy some time for the industry’s domestic expansion. But such moves will reduce India’s competitiveness in the long run,” the article said.

While steel firms in many parts of the world are experiencing a painful process to cut overcapacity, India is looking to significantly expand its domestic steel sector, it said quoting reports that India wants to almost triple the size of its steel industry over the next decade to reduce its reliance on imports.

“However, there are major questions over whether India can really realise its dream of becoming a global steel-producing colossus,” it said. “Though the Prime Minister Narendra Modi administration called for the significant expansion of the steel industry, the government itself may be the major cause of a possible failure in the strategy’s implementation,” it said.

“The Modi administration’s clear ambition to turn India into the world’s factory makes the promotion of India’s domestic steel industry development absolutely necessary, but it is doubtful whether the Indian government is strong enough
to promote this grand strategy,” it said.

Historically, governments in countries like South Korea, Japan and China played an important role in promoting steel industry in the initial stages of their industrialisation.
The South Korean government owned 75 percent of steel giant POSCO when it was set up in 1968, and Baosteel, China’s largest listed steel maker – is state-owned, it said.

“The development of the steel sector requires a large amount of investment…However, India’s democratic system may leave the government with limited power to raise sufficient capital for investment in profitable industries,” it said.

It said in this regard China’s experience of opening-up to the outside world might provide “insight, proving that New Delhi’s promotion of Indian manufacturing will not inevitably lead to confrontation between China and India.”

“China and the US witnessed unprecedented economic interaction in China’s early stage of industrialisation as Beijing actively boosted bilateral trade and attracted investment from the US. Why can’t New Delhi consider adopting similar open-mindedness toward China,” it said.
China is reeling under overcapacity in its steel industry, fuelling global concern. Last month, US Treasury Secretary Jacob Lew asked China to reduce its excess capacity, saying it was distorting global markets.

Source

India promoting its steel industry with trade protectionism: Chinese Media

news-2

India is promoting its steel industry with trade protectionism and making China a “primary victim” of trade investigations, China’s official media alleged on Friday and asked New Delhi to adopt “open-mindedness” towards the world’s largest steel producer.

“It seems India is seeking to boost its domestic steel industry with some help from trade protectionism, making China a primary victim of Indian trade investigations,” an article in the state-run Global Times said.

“It is true that protecting Indian steel firms from intense international competition can buy some time for the industry’s domestic expansion. But such moves will reduce India’s competitiveness in the long run,” the article said.

While steel firms in many parts of the world are experiencing a painful process to cut overcapacity, India is looking to significantly expand its domestic steel sector, it said quoting reports that India wants to almost triple the size of its steel industry over the next decade to reduce its reliance on imports.

“However, there are major questions over whether India can really realise its dream of becoming a global steel-producing colossus,” it said.

“Though the Prime Minister Narendra Modi administration called for the significant expansion of the steel industry, the government itself may be the major cause of a possible failure in the strategy’s implementation,” it said.

“The Modi administration’s clear ambition to turn India into the world’s factory makes the promotion of India’s domestic steel industry development absolutely necessary, but it is doubtful whether the Indian government is strong enough to promote this grand strategy,” it said.

Historically, governments in countries like South Korea, Japan and China played an important role in promoting steel industry in the initial stages of their industrialisation.

The South Korean government owned 75 per cent of steel giant POSCO when it was set up in 1968, and Baosteel, China’s largest listed steel maker – is state-owned, it said.

“The development of the steel sector requires a large amount of investment… However, India’s democratic system may leave the government with limited power to raise sufficient capital for investment in profitable industries,” it said.

It said in this regard China’s experience of opening-up to the outside world might provide “insight, proving that New Delhi’s promotion of Indian manufacturing will not inevitably lead to confrontation between China and India.”

“China and the US witnessed unprecedented economic interaction in China’s early stage of industrialisation as Beijing actively boosted bilateral trade and attracted investment from the US. Why can’t New Delhi consider adopting similar open-mindedness toward China,” it said.

China is reeling under overcapacity in its steel industry, fuelling global concern. Last month, US Treasury Secretary Jacob Lew asked China to reduce its excess capacity, saying it was distorting global markets.

Source

Tata Steel, Thyssenkrupp eye Europe JV

news-1

MUMBAI: In a shift from its earlier strategy of an outright sale of the UK business, Tata Steel on Friday said it’s in talks for a JV with German engineering giant Thyssenkrupp in Europe, which includes Port Talbot in Wales and the Netherlands operations. However, there is no clarity on shareholding structure of the proposed JV.

Tata Steel’s decision, which was announced after a marathon board meeting in Mumbai, was met with some early skepticism from unions which fear job cuts to drive synergies. They also fear the Tatas’ UK business losing out to the Netherlands unit because of Brexit uncertainty.
Earlier in the day, British business minister Sajid Javid met Tata Steel chairman Cyrus Mistry and its top management.

The JV proposal may provide a temporary relief to the beleaguered UK government, which had offered to buy up to 25% stake in the British operations, besides reducing a huge deficit in pension liabilities.

Tata Steel has kept the speciality steels and tube pipes business in the UK out of the proposed JV. The company plans to sell it separately and has also received interest from potential buyers.
The Port Talbot unit is the UK’s biggest steel plant with a capacity of 5.5 million tonnes, while the Netherlands unit has a capacity of 7 million tonnes. Tata Steel employs more than 11,000 people across locations.

In a statement, Tata Steel said that “discussions with Thyssenkrupp have been initiated to explore the feasibility of a strategic collaboration through a potential joint venture”. However, it added that the talks are at a preliminary stage and there can be no certainty of a transaction as the outcome depends on negotiations with various stakeholders.

Kaushik Chatterjee, Tata Steel’s finance director, said the success of its talks, especially the inclusion of the UK business in the potential joint venture, would depend on several issues, including finding a suitable outcome for the British steel pension scheme, successful discussions with the British trade unions as well as financial support from the UK government.
The latest move highlights that Tata Steel is keen to have a play in the UK steel sector. The Tatas have prospected several options after announcing a decision to divest the UK steel unit.
Several investors, including Indian-origin businessman Sanjeev Gupta-owned Liberty Group, Wilbur Ross and India’s JSW Steel, had expressed interest. But the unexpected Brexit vote pushed some bidders to have a rethink while the Tatas were also not fully convinced about the firepower of some of the suitors like Liberty House.

For the Yorkshire speciality steels business and the Hartlepool pipe mills in the UK, Liberty House has shown interest.

n the recent past, the German media had reported that Thyssenkrupp would combine its continental European steel business with that of Tata Steel’s Netherlands unit.
In March, Tata Steel had announced its intention to sell the UK assets.

Source

China is running out of time to cure its steel problems: Andy Home

news-2

China is frantically trying to apply the brakes to its runaway steel juggernaut.
Targets are being set for capacity closures, 45 million tons nationally this year and 100-150 million tons over the next three to five years.
Regional governments are heeding Beijing’s call. Yunnan province, for example, has committed to eliminate 4.5 million tons of capacity by 2018.
Local authorities are being urged to crack down on energy usage in the sector with those that fail to meet efficiency targets facing forced closure if they cannot improve.
A drive to consolidate the country’s fractured steel production landscape has begun with Baosteel, the second-largest Chinese operator, being pushed into a forced marriage with its smaller and financially weaker peer Wuhan Iron and Steel.
Beijing, in other words, is using all of its centrally-controlled levers to try and reform the sector.
It has good reasons to do so. Steel and coal, another sector earmarked for “supply-side reform”, are not only littered with non-performing “zombie” operators but major obstacles on the path toward a greener future.
But the palpable sense of urgency is being dictated by the growing international pressure on China to halt its surging steel exports.
A failure to produce results is going to ignite an already smoldering trade war with other global powers.
But can Beijing deliver? It’s going to help if it stops pressing the accelerator and the brake pedals at the same time. Even if does, though, it may be too little too late.
RAISING THE POLITICAL TEMPERATURE
Reform of the steel and coal sectors has been moving steadily toward the top of China’s national policy agenda ever since the 2009 shock-and-awe infrastructure boom started to lose momentum a couple of years ago.
Left to its own devices Beijing would have preferred a more gradualist process, not least because of the high social costs of weeding out excess steel capacity and loss-making production. An estimated 400,000 jobs would be lost if the full 150-million-ton target is met.
But time is no longer on Beijing’s side.
The trade walls are rapidly being erected.
The U.S. International Trade Commission (ITC) last week ruled that imports of both Chinese cold-rolled and corrosion-resistant steel products were hurting local producers, paving the way for hefty anti-dumping duties.
That just adds to a growing list of punitive U.S. tariffs against Chinese steel-makers.
More may be on their way, including the nuclear option of halting just about all imports proposed by U.S. Steel, which alleges Chinese competitors stole its secrets and fixed prices. Those claims are now being investigated by the ITC.
China has reacted with predictable anger, threatening to take the United States to the World Trade Organisation.
But it is not just the United States that is piling on the pressure.
Any failure by China to curtail its output and exports could prompt the European Union also to take retaliatory action, not only in steel but in other sectors.
“If the problem is not properly remedied, trade defense measures may proliferate, spreading beyond steel to other sectors such as aluminum, ceramics and wood-based products,” warned the European Commission.
Aluminum in particular is another hot-button issue, especially in the United States, where the ITC in April opened an investigation into the domestic production sector and global (read “Chinese”) trade flows.
Looming even larger for Beijing policy-makers is the prospect of seeing China’s bid for market economy status at the WTO founder on the rising protectionist waves.
OUTPUT UP, EXPORTS UP
In trying to react fast enough to head off a full-blown trade war with the both the United States and Europe, China faces two big challenges.
The first is the sheer scale of excess capacity in the country. The most commonly cited figure is 300 million tons which comes from the China Iron and Steel Association (CISA).
Not only is it a suspiciously round figure, suggesting as it does an element of back-of-the-envelope calculation, but even if true, Beijing’s official target of eliminating around half of it over several years will not be enough to satisfy its critics.
The European Commission, for example, explicitly noted that the pledge was insufficient, a point underlined by German Chancellor Angela Merkel, who used a trip to Shenyang this month to warn that as the world’s biggest steel producer, China “bears a greater responsibility” for addressing global market imbalances.
The second more pressing problem is the fact that both Chinese steel production and exports are rising again.
National production has risen year-on-year in the last three months after falling over the course of 2015 and January-February 2016. Cumulative year-to-date output of 330 million tonnes is still down by 1.4 percent on last year but the gap is fast closing.
Exports of steel products have risen by six percent so far this year to 46 million tons and are on course to at least match last year’s massive 112 million tons.
Higher production is a direct reaction to improved steel pricing in China’s domestic market.
The speculative bull bubble of April has been burst but the price of Shanghai rebar has picked itself off the ensuing lows of 1,900 yuan per ton to a current 2,241 yuan. There are no signs that the retail crowd that fueled the spring frenzy has returned.
Rather, the steel price and steel producers are riding the tail-winds of China’s mini stimulus at the start of the year, which like all recent Beijing-designed economic boosters has been focused on accelerated infrastructure spending.
This is the government foot that is still on the steel accelerator, albeit with less force than in the past.
CLOCKS TICKING
Even assuming the effects of mini-stimulus wane over the coming months, there is another, even more problematic dynamic behind buoyant Chinese steel prices.
They are in part reacting to Beijing’s very targeting of excess capacity. After all, less excess capacity promises better profitability for those that survive the coming “supply side” reform package.
Again, it’s a very rational market reaction to government policy but one that promises higher output and, in all probability, higher exports over the coming period.
That wouldn’t matter over a medium-term time frame, if it’s the price to be paid for a leaner, cleaner Chinese steel sector.
But with the clock ticking on more steel sanctions, the potential spread of “defense measures” to other sectors and an end-year deadline for that much-coveted market economy status, time is what China doesn’t have right now.

Source

At home, Tata Steel outperformed peers

news-1

There are two sides to Tata Steel, a struggling European operation at the centre of attention since the $12-billion acquisition in 2007 and a consistently profitable Indian business that has managed to outperform not only its other half by far but also peers in the domestic market.

In terms of profits, Tata Steel India has always been ahead of JSW Steel and Steel Authority of India Ltd (SAIL). The contrast got starker in financial year 2016, when the steel major recorded a net profit of Rs 4,901 crore as against a standalone loss of Rs 3,498 crore by JSW Steel and Rs 4,137 crore by SAIL.

“Tata Seel India is one of the low-cost producers in the world. We have been for a while and will continue to be,” said

T V Narendran, managing director, Tata Steel India and South East Asia. Along with SAIL, the company has an edge over competitors by virtue of raw material linkages.

Tata Steel’s coal security comes from west Bokaro division and the Jharia coalfields with estimated reserves of 287 million tonnes (mt). About 65 per cent of coal requirements are, however, met through imports; iron ore needs are met by the Noamundi, Joda, Khondbond and Katamati mines. According to Narendran, raw material linkages help but the advantage is limited, given the raw material prices are low and the taxes on captive raw materials in India are high. “What drives our competitiveness is our relentless pursuit of cost efficiencies across the value chain. Today, only a few other steel companies who have a fully integrated value chain and operate in countries like Russia and Brazil and have benefitted from a weak currency over the last year or so, have a better cost position than us,” he added.

Tata Steel India’s stellar performance in FY16, comes at a time when competition from Chinese imports is growing at about 200 per cent. Sales of 9.54 mt were the best ever for the steel major. “Domestic steel prices in India declined compared to previous quarter and the impact of the MIP (minimum import price) did not reflect in the market prices. There was strong growth across product/market segments,” Narendran said.

Automotive and special products achieved highest ever sales of 1.43 mt and contributed to 15 per cent of total sales; branded products and retail sales surged to 3.35 mt and contributed 35 per cent. Tata Tiscon registered highest ever sales of 2.51 mt in FY16, a growth of 13 per cent while retail customers increased to 3,000,000 households across India. The company is not resting on its achievements. It is trying to consolidate its leadership position in the domestic automotive segment. The stabilisation and ramp-up process of the three-million-tonne Kalinganagar plant is currently underway. The facility will produce flat steel for high-end applications, enabling the company to expand its product portfolio in the shipbuilding, defence equipment, energy & power, oil & gas, infrastructure and aviation sectors.

“In the last five years, Tata Steel has invested over Rs 40,000 crore, to increase capacity from seven mt to 13 mt in India,” Narendran said. Simultaneously, the company is also working on expanding capacity at its Jamshedpur plants.

The company has got environmental clearance to increase hot metal capacity in Jamshedpur to 12.5 mt and steelmaking capacity to 11 mt.

But, the Indian operations were never a cause for worry. Its overseas operations that had not quite gone according to plans. “We have had a significant movement in the South East Asian operations due to the various actions taken there to focus on cost efficiencies and market facing initiatives. We have also pruned the portfolio further so that we are more focused on the businesses that have a long-term future,” Narendran said. Tata Steel has a two mt footprint in south east Asia, where steel consumption is growing at six per cent.

“Bangladesh is another fast growing market that we will try to service out of India,” he said.

What about Europe? “There are a number of actions underway to optimise our footprint and build long-term competitiveness,” is all that Narendran is willing to say at the moment.

Tata Steel had announced restructuring of its European portfolio in March which included divestment of Tata Steel UK, in whole or in parts, after struggling to make it work for nine years. In the last five years, it had suffered asset impairment of two billion pounds.

Source

Anti-dumping duty likely on certain steel items from China

news-1

NEW DELHI: The government has initiated a probe into dumping of certain steel items used in automotive and construction industry from China, in order to protect the domestic industry.
SAIL, Rashtriya Ispat Nigam, Usha Martin and JSW Steel have filed a petition before the DGAD for initiation of anti-dumping investigation and imposition of the taxes on the alleged dumped imports of “wire rod of alloy or non-alloy steel” originating in or exported from China.
The Directorate General of Anti-Dumping and Allied Duties (DGAD) said, at first look, it has found “sufficient evidence of dumping” of the products from that country.
“The authority hereby initiates an investigation into the alleged dumping causing consequent injury to the domestic industry … to determine the existence, degree and effect of dumping and recommend the amount of anti-dumping duty, which if levied, would be adequate to remove the injury to the domestic industry,” the DGAD has said in a notification.
The period of investigation covers July-December 2015. The injury investigation period will also cover 2012-2013, 2013-2014, 2014-2015, April 2015-December 2015.
Besides, it said the applicants have requested for retrospective imposition of the anti-dumping duty.
The products under consideration in this investigation are bars and rods, hot-rolled, irregularly wound coils, iron or non-alloy steel or alloy steel, which are commonly known as wire rods.
It is used in many applications and sectors such as automotive components, welding electrodes, fasteners including nuts and bolts, nails, railway sleepers, general engineering, binding wires for construction industry, armoured cables.

Countries start anti-dumping probe to determine whether their domestic industries have been hurt due to surge in below-cost imports. As a countermeasure, they impose duties under the multilateral regime of WTO.
The duty is aimed at ensuring fair trading practices and creating a level-playing field for domestic producers vis-a-vis foreign producers and exporters. India has already imposed anti-dumping duty on several products to tackle cheap imports from some countries including China.

According to a WTO report, India, the US and Brazil were the leading initiators of anti-dumping investigations in 2015.
The WTO members initiated 107 new anti-dumping investigations from January-June 2015, slightly up from 106 in the same period in 2014, the report added.

Source

Positive on JSW Steel as prices firm up, imports abate: JPMorgan

news-2

JP Morgan has re-iterated its ‘Overweight’ rating on JSW Steel with a price target of Rs 1,500 in a note to investors citing possibility of marked improvement in FY17 EBITDA/tonne for large domestic players due to upward momentum in domestic steel prices and declining pressure from imports.
“As such, JSW is well poised to see an improvement in earnings. JSW will also benefit from a ramp-up in domestic production,” the note says.
The Morgan note follows an exchange filing by JSW requesting shareholder approval for a potential equity issuance of Rs 4,000 crore and/or non-convertible bond issuance of USD 200 crore, among others. In the filing, JSW has said the funds will be utilised for capacity expansion to 40 million tonnes (MT) by 2025 from 18 MT, with additional investments in iron ore and coal.
Morgan believes such issuances are routine and highlight the company’s long-term vision on capacity enhancement. However, such proposals are standard and under new corporate laws companies normally take the approvals in the Annual General Meeting (AGM) which are valid for a year. “The above proposals do not mean that any equity issuance is around the corner,” the note says.
The note goes on to highlight that the 4 leveraged metal companies in India, Tata, JSW, Hindalco and Vedanta are on the path of de-leveraging, but the down-cycle in commodities means that operational cash generation is a very slow option.
Also, the down-cycle throws up interesting merger and acquisition (M&A) options while reducing capacity expansion costs sharply. Companies lead equity to fund these requirements while keeping leverage under check.
While investors are worried about the removal of minimum import price (MIP) in August, and the impact on domestic steel prices, JP Morgan believes the fragile recovery in the steel industry and the stress in banking system make case for some sort of import protection post August as well.

Source