What Can We Infer from SAIL’s Result?

Steel Authority of India Limited (SAIL) recently announced its annual production figures and gave a guidance for next financial year.

SAIL, India’s largest steelmaker, has declared its annual production result, in which the company has produced 13.91 MnT crude steel and 12.84 MnT saleable steel (finished flat, finished long and semis) in FY15. The saleable steel sales declined to 11.71 MnT in the last fiscal from 12.1 MnT in FY14.

The company’s crude steel production has increased to 13.91 in FY15 against 13.58 MnT in FY14. In addition, out of the total saleable steel production of 12.84 MnT,  3.21 MnT was Semis, 6.93 MnT was flats and 2.69 MnT was longs salebable steel.

SAIL’s Steel Production of 3 Fiscal Years

Quantity in MnT
Source: SAIL; JPC

Guidance for FY16

SAIL has targeted an incremented production of 2.7 MnT crude steel in FY16. 1.5 MnT will be from IISCO (Burnpur) and 1.2 MnT will be from Rourkela Steel Plant. The company has also planned to produce 2.5 MnT finished steel in FY16, which will be in the form of rebar, structure and wire rod. This idea has brought about a mixed response in the market; for one section of industry it will be beneficial, while, for other, it will create more challenges.

Challenge for Rebar & Structure Manufactures

SAIL’s incremented capacity of about 2.5 MnT will come in the form of long steel (rebars, wire rod and structure). Increased capacity will poise a big challenge for secondary steelmakers, who are currently struggling with slow demand, rising import and hike in power tariff.

It is expected that price premium between secondary and primary manufacturers will narrow down drastically. Currently, the difference has narrowed down to INR 2,000-2,500/MT, which used to be INR 4,000-5,000/MT at one point of time.

Pig Iron Prices will Find Support

We expect that there will be low sales of Pig iron by SAIL in coming year from its Rourkela plant. This will provide some support to Pig iron domestic prices. In FY15, the company has produced about 0.41 MnT Pig iron from its Rourkela plant.

Amid increase in production by primary producers coupled with rising import and weak demand in domestic market, it is expected that secondary steel producers will be under extreme pressure in coming years.