Competition heats up for secondary steel players: Crisil

A Crisil study of 274 secondary steel producers in India has revealed that the credit risk profile of one in every seven players in the industry will be adversely impacted by intensifying competition in the wake of large, ongoing capacity expansions by primary steel producers.

The impact will be largely on players operating in South-East India, where most of the incremental capacities are coming up.

Secondary steel players produce steel using induction or electric arc furnaces, and dominate the 31-million tonne (mt) long steel segment of the 62-mt steel market in India. These players have small capacities, but collectively command 75 per cent of the steel long products market, given their low logistics costs, access to key raw materials, and superior regional market positions.

Primary players, which use blast furnaces to produce steel, have traditionally focused on flat products, and account for only 7.5 mt of the long products segment. Over the next four years, however, primary players, especially Steel Authority of India Ltd (SAIL) and Rashtriya Ispat Nigam Ltd (RINL), plan to nearly double their finished long product capacities through brownfield expansions mainly in South-East India.

Although the market is expected to grow at 8.5 per cent over the next four years, the capacity expansions by primary players will restrict secondary players to a compound annual growth rate of less than 6.5 per cent (as against 10 per cent in the past three years).

''With primary producers accounting for nearly half of the expected incremental demand of around 12 mt for long products over the next four years, the secondary players' market share will decline to less than 70 per cent, says Gurpreet Chhatwal, director, Crisil Ratings.