India defies world losses with steel output expansion

Bloomberg

At a time when a surplus is forcing steel mills to close around the world, India’s debt-laden producers are ramping up to supply more of the metal than ever.
Steel Authority of India Ltd., Tata SteelBSE 1.02 % Ltd. and JSW SteelBSE -0.69 % Ltd. — which all posted losses last year — are targeting record output in 2016 and want to almost triple capacity over the next decade. They expect demand in the world’s third-largest producing country to grow at about quadruple the current rate as Prime Minister Narendra Modi embarks on huge investments in new railroads, highways and ports, including $44 billion pledged for this year.
Betting on a building boom isn’t without risk. Steel output is still exceeding stagnant demand. The government had to prop up slumping prices while restricting cheaper imports. And the country may not have enough power plants to supply the electricity an expanded industry would need. But investors are optimistic. Shares of JSW and Tata have surged as the Standard & Poor’s BSE India Metal Index heads toward its biggest annual gain since 2009.
“It is an ambitious move and a strategic decision by steel companies to up their production,” Gunjan Aggarwal, an analyst at CRU Group, a commodity researcher, said by telephone from Mumbai. “They are trying to recover the ground they had lost in the last two years or so to imports.”
Like big steel markets in the U.S. and Europe, India was inundated with cheap supplies from China, the biggest producer and exporter. While Indian demand has doubled in the past decade as the economy expanded, the country still produces more than it consumes. Record imports sent steel prices in January to a six-year low. The slump led to losses for JSW, SAIL and Tata, the largest producers, during the fiscal year ended March 31.