Indian steel companies are likely to spend much less on capacity expansion this year due to muted demand, overcapacity and shortage of raw material.
Steel Authority of India Ltd (SAIL), the country’s second largest steelmaker in terms of revenue, has cut its capex plan for the year by almost Rs 2,000 crore. “We have earmarked around Rs 9,300 crore for our ongoing expansion and modernisation plans,” SAIL chairman C S Verma told Financial Chronicle. The firm spent Rs 11,000 crore last year.
Kalyani Steels, which is part of the $2.5 billion Kalyani Group and which produces 400,000 tonnes of carbon and alloy steels per annum, has shelved capex plans for the time being.
RK Goyal, managing director of Kalyani Steels, said there was overcapacity in the market. “We have shelved expansion plans for the moment as demand continues to be low. We may think of expanding further once the economy improves,” he said.
The company had plans to increase capacity to 1.2 million tonnes from 0.7 million tonnes, but Goyal said those would remain on hold for now.
Analysts say other companies too will cut capex plans for the year despite expectations of faster growth in the domestic economy.
“Steel companies are cautious with capital expenditure plans due to a slowdown in the sector and declining domestic demand,” said Sanjay Jain, an analyst at Motilal Oswal.
Steel demand in India grew at a mere one per cent in the financial year ended on March 31.
Most domestic steel plants are running below capacity. Globally too, steel demand is under pressure as China is consuming less.
Motilal Oswal’s Jain said Tata Steel, India’s biggest steel producer, might be the only player to go for a slightly higher capital expenditure due its ongoing project at Kalinganagar.
But others like JSW Steel and Essar Steel are expected to set aside lesser funds for capex in 2014-15. “Most companies are going slow in fresh investments for capacity expansion,” Jain said.
A senior official from JSW Steel said the company was still working on its capex plan and would announce it during earnings announcement next month.
Kamlesh Bagmar, an analyst at Prabhudas Lilladher, said the steel sector’s capital expenditure would fall because of three reasons: slowdown in demand, non-availability of adequate raw material and lower capital requirements for projects that are nearing completion.
JSW Steel is going slow on expansion of its Vijaynagar plant because of non-availability of enough iron ore and SAIL will need to spend less because its ongoing expansion and modernisation projects are nearing completion.
Bagmar doesn’t expect the demand environment to improve anytime soon as he sees no sign of revival in the real estate, auto and infrastructure sectors.
India is the fourth largest steel producer in the world and clocked 81.2 million tonnes output in calendar 2013. Crude steel production grew 5.1 per cent last year, which was second highest in the world.
This article taken from mydigitalfc : http://www.mydigitalfc.com/sectoral-watch/steel-firms-cut-capex-plans-amid-muted-demand-379
Steel Authority of India Ltd (SAIL), the country’s second largest steelmaker in terms of revenue, has cut its capex plan for the year by almost Rs 2,000 crore. “We have earmarked around Rs 9,300 crore for our ongoing expansion and modernisation plans,” SAIL chairman C S Verma told Financial Chronicle. The firm spent Rs 11,000 crore last year.
Kalyani Steels, which is part of the $2.5 billion Kalyani Group and which produces 400,000 tonnes of carbon and alloy steels per annum, has shelved capex plans for the time being.
RK Goyal, managing director of Kalyani Steels, said there was overcapacity in the market. “We have shelved expansion plans for the moment as demand continues to be low. We may think of expanding further once the economy improves,” he said.
The company had plans to increase capacity to 1.2 million tonnes from 0.7 million tonnes, but Goyal said those would remain on hold for now.
Analysts say other companies too will cut capex plans for the year despite expectations of faster growth in the domestic economy.
“Steel companies are cautious with capital expenditure plans due to a slowdown in the sector and declining domestic demand,” said Sanjay Jain, an analyst at Motilal Oswal.
Steel demand in India grew at a mere one per cent in the financial year ended on March 31.
Most domestic steel plants are running below capacity. Globally too, steel demand is under pressure as China is consuming less.
Motilal Oswal’s Jain said Tata Steel, India’s biggest steel producer, might be the only player to go for a slightly higher capital expenditure due its ongoing project at Kalinganagar.
But others like JSW Steel and Essar Steel are expected to set aside lesser funds for capex in 2014-15. “Most companies are going slow in fresh investments for capacity expansion,” Jain said.
A senior official from JSW Steel said the company was still working on its capex plan and would announce it during earnings announcement next month.
Kamlesh Bagmar, an analyst at Prabhudas Lilladher, said the steel sector’s capital expenditure would fall because of three reasons: slowdown in demand, non-availability of adequate raw material and lower capital requirements for projects that are nearing completion.
JSW Steel is going slow on expansion of its Vijaynagar plant because of non-availability of enough iron ore and SAIL will need to spend less because its ongoing expansion and modernisation projects are nearing completion.
Bagmar doesn’t expect the demand environment to improve anytime soon as he sees no sign of revival in the real estate, auto and infrastructure sectors.
India is the fourth largest steel producer in the world and clocked 81.2 million tonnes output in calendar 2013. Crude steel production grew 5.1 per cent last year, which was second highest in the world.
This article taken from mydigitalfc : http://www.mydigitalfc.com/sectoral-watch/steel-firms-cut-capex-plans-amid-muted-demand-379
