Companies & Sectors
Steel prices expected to go up by January on higher raw material costs

There hasn’t been much change in the demand, but increasing raw material costs is putting pressure on steel producers to hike prices

Indian steel makers may go for another price hike as surging raw material--iron ore and coking coal-prices will pressurise steel mills to increase product prices, according to industry experts.

"It looks like prices will go up. Steel prices will move upwards keeping in mind that coking coal prices are being finalised at a higher level for the January-March period and iron ore prices are also moving up. So there will be severe cost pressure on steel mills which will lead to a price hike in January," Sharad Mahendra, vice president, sales and marketing, JSW Steel told Moneylife.

"Some steel makers are planning to increase steel prices by end-December or early January. Though globally steel prices are at an improved level, it's purely because of high raw material prices and there is no significant rise in demand. To protect margins and grab the better demand-supply scenario in the fourth quarter, steel companies are preparing to increase prices," a Mumbai-based analyst said. 

Recently, state-run Steel Authority of India (SAIL) increased prices of long products by Rs300 to Rs37, 500 per tonne, citing good demand for long products as construction activity is likely to pick up in the coming quarter. JSW Steel has raised hot rolled coil prices by 1-1.5%.

According to the analyst, steel prices may increase between Rs1,000 to Rs1,500 per tonne. Mr Mahendra said, "It's difficult to predict the exact hike as coking coal contract prices are in the last stage of finalisation, but in terms of percentage it could be between 3% and 6% per tonne. It's just a guess now."

China is the largest steel producer, so whenever raw material prices go up either they have to shut down units or hike prices, added the analyst.

Now, the Chinese steel industry is coming back on track. Some market experts feel that threat of cheaper Chinese imports into the country may restrain domestic players to go for a large price hike.

However, Mr Mahendra said, "Even though the Chinese steel industry is coming back on track, we do not see it as a threat as the input costs in terms of iron ore and coking coal are very high, so the Chinese mills are not able to export their products at lower prices. Secondly, after capacity shutdowns, which were taken place because of the Chinese government's energy rationalisation policy, Chinese steel demand is forecast to be very good. So I don't think China's increasing steel production will impact the Indian market in the near term."

Supply of coking coal and iron ore would be another concern for steel makers as supply would be less amid higher demand from China and India.

"China's average steel production is 50 million tonnes per month. In September, steel production stood between 46 million tonnes and 47 million tonnes, however, the country managed to produce more than 50 million tonnes of steel in October and for this monthly rate of production the requirement of iron ore and coking coal is huge," said the analyst.

"Weather predictions in Australia, from where majority of coking coal comes, are very bad. It may impact shipments and movement of coking coal from Australia to the rest of country. In India, very few mines are working right now and production of iron ore has come down," added Mr Mahendra.

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Ispat fails to keep its commitments to its lenders; what next?

Ispat Industries has failed to live up to every commitment it made as part of the corporate debt restructuring package so generously approved by lenders in 2003. Will the lenders now act as they would if it were a small business they were dealing with? 

Ispat Industries Ltd (IIL), which finds itself in dire straits thanks to almost two decades of severe mismanagement, responded to our recent series of articles on the company by asserting that it has been fulfilling its obligations to its lenders, "though there are some delays". However, the latest report on the progress of corporate debt restructuring (CDR), a copy of which is available with us, shows that the reality is quite the opposite. Ispat is way behind in meeting every commitment and the lenders are, at least on paper, concerned.

The report dated 22nd October says that the Lenders' Monitoring Committee (LMC) "felt that in order to bring financial discipline in the company, TRA mechanism should be strictly implemented immediately and close monitoring for the same is required by the TRA bank, viz. SBI." (TRA stands for Trust and Retention Account.) The report goes on to state that "the company was directed to submit expenses budget on a monthly basis in advance in respect of subsequent month to the lenders for their examination and approval by the LMC for effective monitoring of TRA." The report goes on to discuss the various compliance steps that Ispat has failed to take as part of the CDR. Here is a summary of how lenders see Ispat's compliance on various counts.

Financial closure for Ispat Energy Ltd (IEL): Ispat is setting up 110MW captive power plant through Ispat Energy Ltd (IEL), a separate company. The CDR scheme for Ispat approved in January 2003 envisaged financial closure of IEL by 31 March 2003, almost eight years ago. However, IIL could not complete the project. The CDR package envisaged recovery of Rs250 crores (already incurred by IIL on the above project prior to CDR package) by IIL from IEL in 13 annual instalments of Rs19.40 crore each from FY2006, payment of Rs70 crore per year by IEL to IIL towards Blast Furnace Gas (BFG), reduction in the expenditure towards power for IIL by Rs70 crore per year on implementation of power project and receipt of dividend by IIL from IEL to the tune of Rs18 crore per year. All these promises failed miserably. Further, while approving Rework Package in May 2009, the lenders stipulated that the financial closure for the captive power plant should be achieved by 31 March 2010. Ispat failed in this too. The deadline was extended up to 30 June 2010. This deadline has also come and gone. The generous lenders now say that "as the process for sanction of loan to IEL by FI/Bank is expected to take some time, IIL has now requested the CDR lenders to grant extension of time up to 30 December 2010."

Sale of flats of Peddar Road property: Ispat was required to receive Rs105 crore from the booking proceeds of the flats being developed in the Peddar Road property by March 2006. However, Ispat has not still done this. Two years after the initial deadline, Ispat was still talking of a schedule of payments extending well into November 2008. Ispat was generously allowed time up to 31 March 2010 to sell two flats. This was extended to 20 June 2010. How many small businesses would be given this luxury after they have mismanaged their businesses and have been unable to meet any commitments to their bankers? Ispat then came up with a new idea-that DTZ, one of the world's independent property consultants, has been appointed to market the flats. Ispat has been asked to bring in at least Rs40 crore by 31 October 2010 and Rs215 crore by April 2011. Ispat will in all likelihood fail to meet this commitment too.

In May 2009, Ispat got a "rework package". This comprised loans equivalent to interest for the period from January 2009 to 31 December 2009, aggregating Rs638.89 crore, to meet the working capital gap. Ispat promptly defaulted in payment of dues for July, August and September 2010. The overdue amount on 30 September 2010 was Rs294.46 crore, half of which was the interest cost.

Coke oven and pellet plants: Ispat was supposed to achieve financial closure for a one million tonne per annum (tpa) coke oven and a two million tpa pellet plant by 31 March 2010. Ispat failed in both. The bankers extended the time up to 30 June 2010. Ispat failed to meet this deadline too and requested for an extension up to 31 December 2010.

Damkowadi mines: Ispat has mines in Damkowadi near Nagpur, in Maharashtra, and had committed to start production from these mines by FY2011. It is nowhere near meeting this deadline and the lenders have decided to "appoint an independent consultant to evaluate the legal status, estimated reserve and present status of acquisition, etc."

Capex: The lenders had told Ispat not to incur further capital expenditure acquisitions and investments "without prior written approval of CDR lenders, except the normal capex required for the plant of about Rs60 crore per year." But Ispat has spent Rs143.81 crore during the 15 months (April 2009 to June 2010) on fixed assets, as against normal capex of Rs60 crore per annum provided in the CDR package. The lenders have told Ispat "to give justification for the said expenditure."

The lenders conclude their assessment of Ispat's compliance with the terms of the CDR by stating that as Ispat "has not been able to comply with the above conditions", EOD has occurred and lenders "have the right to convert the entire outstanding (Rs638.89 crore) along with outstanding interest, if any, into fully paid equity shares of IIL. Individual lenders shall have the right to exercise their respective conversion right." (EOD stands for 'event of default'.)

Well, we are not holding our breath to see what the lenders, IDBI Bank, IFCI, ICICI, Punjab National Bank and State Bank of India do. They will probably extend their generosity again. But a steel industry source told Moneylife, "time is running out for Ispat. It can only be rescued through a takeover, even though the Mittals are fighting hard to avoid it."

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COMMENTS

sangeeta

7 years ago

Why don't you Ispat Employees and suppliers who have been commenting on this website get together to file a case against lending institutions.

Tell the courts to ensure that they enforce a change in management and sell their shares, when the company is still attractive to buyers and you can retain your jobs and keep your future safe.
Its time Indians learnt to stand up for their rights or fight for them.

raj arya

7 years ago

this is nothing new abt ispat
actually speaking nothing new abt the lenders also. its public funds and who cares a damn abt public money.

Retesh

7 years ago

Que to Debashis Basu - I have invested in Ispat long time ago since its enterprise value was and continues to be far lower than its competitors though it is making one of the finest steel with 4th largest plant in India. Considering the tight monitoring by lenders now, financial discipline will follow - so this is blessing in disguise for small investors. But what's that keeping you so much demotivated about future prospects of this stock, since there are tangible assets which no one seems to ignore and the doubts are towards management's intent and financing for various projects which probably will improve due to tight monitoring now.

REPLY

Debashis Basu

In Reply to Retesh 7 years ago

If the management is changed, the stock will zoom. But only the banks can do this and they have so far supported the current management. Who knows what happens tomorrow?

Retesh

In Reply to Debashis Basu 7 years ago

Ispat's share price is moving up every day now despite any clarity on time line of plant starting production again, strategic acquisition, etc what ever the case may be.

You and your team have highlighted certain key issues and as an investor would expect to hear more.

Keep up the healthy journalism. Infact I noticed moneylife website while seraching Ispat on Google few days back and thereafter I have gone through many articles on your website. Three cheers to you and your team on quality of journalism reports such as challenging stake increase of LIC in open market by coorbrating evidence of delivery positions, reporting on increase in risk premium for mortality despite increase in life expectancy due to better health conditions.

Best regards,
Retesh

deshmukh

In Reply to Retesh 7 years ago

tight monitoring .....TIght monitoring ,,,,,,,TIGHT monitoring .......:)

Vinod M

7 years ago

Dont worry people ,
L N bhaiya hai na ....!!

REPLY

Pramod M

In Reply to Vinod M 7 years ago

;D

TPH

7 years ago

Its an apple to all banks to please do not lend more money to the company.They will default in payments and in deadlines as they ha done before. Its better that the company management is totally changed and some one overtakes this .
Its has the caliber to achive great hieghts but the management is sucking money for their own good.

REPLY

SURI

In Reply to TPH 7 years ago

Please read wonderful article on moneylife

http://moneylife.in/article/81/11919.htm...

regarding deterioting quality of audits and bank finance. Foreign consulting firms are hired at big price and rosy picture is given in frount of investors. Check out who is the Auditors of ISPAT and their accountability on the part of investors of the company.

Swati

7 years ago

Hey guys ,
atleast think about the Employees of the company ...!!

REPLY

cant say

In Reply to Swati 7 years ago

the company is at its worst stage.....employees suffering a lot...ispat employee

SURI

In Reply to cant say 7 years ago

im an ispat employee...praying god to start the production

MDT

In Reply to SURI 7 years ago

@cant say and @SURI....you are welcome to share your grievances with us. send us an email : news@moneylife.in.. We will not share your name, designation if you desire.

Rohit

7 years ago

@ Sakshi : U seem like a retail investor who lost there money when ispat's share fell from Rs92 to Rs17 in recession .............:D hehe

REPLY

rakesh

In Reply to Rohit 7 years ago

please dont get personal here.
do you have anything to add?
by the way when did ispat hit 92? please check your facts or go to moneycontrol

Sakshi

7 years ago

1.As we can see that all the facts and figures given here are open for verification ,then why not Ispat Industries Ltd. release any kind of Press statement like other groups Sahara,TATA,cadbury's,coca cola have done on such ocassions????
2.Today is 35th day and this 3.6 MTPA steel Plant is completely under shutdown (fourth largest plant of Nation).after Rs 332 cr loss for second quarter,how can we expect to shut the productions for so long??????
3.The failure of ispat in meeting any and every kind of deadline shows how grossly the business is being managed
4.If somebody check "Global holding Pvt Ltd" a subsidiary of IIL at Google, one can see that not only Moneylife but lots of other people are openely speaking the truth about This group.
5.Where is the RBI ,GOVT OF INDIA .Will they awake only when group of such massive size declared BANKRUPT
6.INternal Sources account for the fact that Salaries of Employees are delayed by 10 -15 days and it has become a trend from past few years .Even there has been no ANNUAL INCREMENTS from past two years .
7.INternal Sources also account for the fact that there is no CAPTIVE POWER PLANT kind of thing inside PLANT campus.These are just on Papers Where the hell is MONEY going ???????
8.@Swati : Bulagarian football club owned by Mittals has already been sold in 2009 as it was making heavy losses

REPLY

tulya Mhatre and asha Patil

In Reply to Sakshi 7 years ago

1.
I am also Ispat employee.I dont agree what sakshi has to say.Although there has been some delay in salaries ,if the salaries are given on 10th of every month then it can be considered as Normal ,shifting the start of month by 10 days.Do you expect that employees of the company receive salaries on 10th of a month and 1st of next month?????? its ridiculous!!

2.
Its not the first time this kind of thing is happening in INDIA ,Businesses do face ups and downs.
we all have moved on from the licence RAJ period .I am sure there are well assigned people to look after the sick Industry matter.
3.What Promoters do in London or bulgaria ,whether they owe a football team or another company is none of anybody's business .The legalities and frauds are the responsibilities of respective governments.
4.Although media is behind the Promoters , they should not forget that it was during recession when none of any employee was fired and employees were receiving salaries on time without any deductions.
@sakshi: It is also for open verification that Essar steel fired all of its contract labour and lower level employees during recession.I have people who joined ispat in recession after being fired by ESSAR and other groups

Sitara

In Reply to tulya Mhatre and asha Patil 7 years ago

@Mr. tulya mhatre

Do you have any idea about technical upgradation going in this steel plant as stated by the Group to Bombay Stock Exchange???

swati

7 years ago

Moneylife seems to be totally behind ISPAT industries but my question is if the company management is not good that why retail investor should be hurt as they dont know whats cooking behind the company.. Will any other company overtake this mismanaged company? Why ISPAT till now have football team abroad and why dont they sell it..

Nothing to toast about: Wine sales haven’t picked up despite industry’s efforts

Not so long ago, wine producers believed they could expand the market in India significantly. It has quite turned out that way as demand is sluggish and they are burdened with unsold stocks

Four years ago, wine producers dreamed of expanding the growing interest in wine in the country. Today, those dreams remain unfulfilled as the industry struggles to squeeze out any worthwhile gains.

India is believed to be one of the fastest growing markets for wine. In fact, it's not only about wine, but it's among the fastest growing markets for several items-from food and clothing to fun and entertainment-with demand being generated from a fast-growing consumer class.

So, in 2007, the wine makers drew up big plans hoping to introduce the uninitiated to a new taste. And there was good reason for such hope. Domestic wine consumption had grown to about 10 million litres that year from just one million litres in 2001.

They introduced wine-tasting sessions that were well-received, held wine exhibitions that were well attended and wine producers even set up visits to vineyards, combining education with pleasure. Sure, these programmes have reached many who didn't know much about wines, but it hasn't helped expand the business much.

Why has acceptance been slow? Hemant Walunj, assistant winemaker with Vallée de Vin, believes, "People do participate in wine-tasting events and farm visits, but when it comes to actual buying the wine, many people do not. Price is the major factor, as wines cost a lot more compared to other liquors." Vallée de Vin (the name means valley of wines) produces and exports wines from its unit near Nashik, Maharashtra. 

Subash Arora of the Indian Wine Academy blames the sluggishness on government policy. "One of the reasons that the wine industry hasn't performed as expected is that government policy is not conducive for selling of wine in India."

The global financial crisis may also have something to do with it, as the market for wine which was growing at about 28% up to 2007, has dropped thereafter by nearly 30%.

A year ago, Moneylife reported that large stocks of unsold wine could result in winemakers selling their products at reduced prices. For example, Sula Wines, one of the major producers, had about 40-50% of its wine stocks lying unsold in its tanks; it was worse with Indus Wines which had around 90% of unsold inventory.

In fact, a combination of low demand and damage to grape crops due to unseasonal rain over the past two years has resulted in the prices of wine remaining stable.

"Producers will first look to dispose off unused stocks. Even production is undertaken on the basis of the unsold stocks. But this is not the right way to go about the business," says Mr Arora. "Good marketing and branding strategies are required."

On the issue of prices, Mr Arora believes that while there is good demand in the domestic market, Indian wines have a narrow international market, catering to restaurants serving Indian food.

Ankush Mittal, director, Mittal Vineyards, also based in Nashik, does not expect prices to rise. "For the past two years the wine industry has stagnated due to recession. Production was increased in anticipation of a rise in demand which hasn't happened. So there is hardly any scope for rise in wine prices," says Mr Mittal. "However, if we have unseasonal rain next year also, the scenario could be different." 

Clearly, wine makers have a lot to deal with, to turn around this situation. Of course, they will hope that the initiatives they have launched will not be wasted. Gaurav Chitnis who operates Unity Wine Tours, is encouraged by the response so far. "Business has been quite consistent. A lot of people are getting aware of the wine industry with many wine-tasting festivals held across cities. People continue to be interested in grape farm tours."

User

COMMENTS

TAK

7 years ago

If there is a glut, why are the wineries keeping prices so high.
Prices for a Sula or a Grovers Cab need to be no more than Rs300- per bottle or 50% of the current prices.
Also beer and wine licences should be unified for restaurants. There are so many restaurants in Bangalore that serve beer but are not able to serve wine since it probably needs an additional licence.

VitaBellaWine

7 years ago

Nice analysis! VitaBella Wine Daily Gossip brings together some articles exclusively about Wine, read on the internet over the last 24 hours. This is a good article selected today by http://www.vitabella.fr

Manoja

7 years ago

The stupidity of the wine producers is the major reason for the wine sales not taking off.

Wine producers in Maharashtra forced the government to levy additional duty on wines not produced in Maharashtra. The same was replicated in Karnataka by the wine producers here. The loser was the end user. The prices of wines shot up by a couple of hundred rupees at the minimum, the additional charges on account of increase in taxes. Neither the producer nor the consumer got benefit out of this stupid move.

As a regular wine drinker, I have one word of advice for the wine producers. Get rid of this stupid tax structure and you will see multifold growth in the sale of wine in this country.

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