One in seven secondary steel producers will be affected as large primary steelmakers such as SAIL and RINL expand their capacity, reveals a Crisil study. Secondary producers use scrap as raw material and induction/electric arc furnaces to produce steel.

“The impact will be largely on players operating in South-East India, where most of the incremental capacities are coming up,” said Crisil in a statement. This is after studying the credit-risk profile of 274 secondary steelmakers, which dominate the 31-million-tonne long-steel product segment in India.

Secondary players have small capacities, but collectively command 75 per cent of the long product market, given their low logistics costs, access to key raw materials and superior regional market position.

Doubling capacities

Primary players, which account for a fourth of the long product market, are doubling their product capacities as they expand their operations.

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

The capacity expansions may affect the credit quality of around 15 per cent of Crisil-rated players mainly based in the south-eastern region and having non-integrated rolling mills or weak capital structures.

Secondary producers are dependent on local markets for off-take. “Players with leveraged capital structure, even if their operations are well integrated, will also be affected as a decline in revenue or profitability can constrain their debt-servicing ability,” Mr Manish Gupta, Head, Crisil Ratings, said.

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