The global commodity free fall played havoc with Indian metal companies in 2015, pushing many to the brink of operational losses and capacity shutdowns. The new year will be crucial to see which way the prices move. Metal manufacturers will also be banking on a pick-up in the domestic economy and some support from the government to fend off cheaper global imports.

 

TRENDS TO WATCH

 

Debt restructuring

 

In 2015, banks invoked strategic debt restructuring for a number of stressed steel makers. Over the next 18 months, banks will look for buyers for these assets. The availability of assets at potentially reasonable valuations may give larger firms the option to buy assets and consolidate their hold on the markets. Private equity firms which run stressed asset funds may also emerge as buyers.

 

Mine auctions

 

2016 will see states auction manganese, limestone, copper and iron ore mines for the first time Watch out for the bidding strategy that metal companies will adopt. Global commodity prices are at record lows and Indian metal companies are highly leveraged. This may dent their ability to bid aggressively.

 

Chinese policy

 

2015 saw steel and aluminium imports, mainly from China, erode a significant amount of the incremental demand growth in India for these metals. With China continuing with policies to boost exports, the industry remains wary. A further devaluation of the yuan could also make Chinese imports more cost-effective. The industry is now looking for production cuts from Chinese metal makers which could improve the global oversupply situation.

 

Domestic trade policies

 

India plans a minimum import price for steel products to protect domestic manufacturers from growing imports. The price band for the minimum import price will be important to see if it helps curb imports. Industry experts say the benefits from safeguard duties for steel products has been limited so far. This may force the government to do more.

 

Government spending

 

India’s top three steel producers JSW Steel Ltd, Tata Steel Ltd and Steel Authority of India Ltd (SAIL) will commission fresh production capacities. This will add to the supply-side pressure even as demand growth stays a modest 5.3%. Government spending on Make in India and other infrastructure projects could push steel demand growth rates. If all government spending commitments are met, steel demand growth could rise to 6%. （Source:livemint)