Mr. Suresh Kumar Agrawal
Non- Executive Director
The Global Steel Industry was in the throes of turbulent time. The year gone by (2015-16) threw severe challenges at our Company. Excess steel capacity globally coupled with (a) sluggish investment and consumption spending and (b) historically low prices have resulted in a severe strain on the Company’s operational and financial performance. Falling oil and gas related investments and the squeeze on Government spending have affected steel demand in economies dependant on oil based revenue.
With the deep integration of China in global manufacturing supply chain, this sector has slowed as a consequence of weak growth in global trade. The scenario for emerging markets and developing economies is not very encouraging either. Exports from China continue to penetrate markets all over the world, exerting downward pressure on the price of the steel in India. The Country suffered from unprecedented in how of Steel imports from China, Japan, South Korea and Russia. In this climate, your Company will likely look to reduce debt, manage costs and implement operational improvements to weather the turbulence ahead. Your Company is looking towards 2017 for signs of recovery but bracing for a tough year in 2016. The Government of India has announced its first list of 20 smart Cities that will offer smart solutions such as assured power, water, supply, sanitation and solid waste management, efficient urban mobility robust, IT connectivity, e- governance, citizen safety, among others.
The Government’s “Make in India” initiative along with other drives to improves the ease of doing business in India have been slowly leading to positive results. The emphasis has been on simplification and rationalisation of the existing rules and introduction of IT to make governance more efficient and effective. India was ranked 142 in ‘Doing Business Report/, 2015. The World Bank has released Doing Business Report 2016 on 27/10/15 where India ranked 130th thereby improving its Rank in starting a business dealing with construction permit and getting electricity indicators.
India’s prospects are brightening due to low oil prices, the reform momentum and policies to increase infrastructure & manufacturing output. India’s Steel demand will increase by 5.4% in 2017 reaching 88.3 MT in 2017. During the year 15-16, we have faced sluggish growth and on such devastating conditions we were irrepressible. We have reorganised business to optimum cost, enhance capacity efficiency and productivity of our workforce. We tried that the Company remain unflinching to counter all outlandish challenges but due to enhanced finance cost for borrowings and stagnant demand, we failed to become true beneficiaries thereby incurring loss of ` (17,844. 36) Lacs.
India’s iron ore production in F.Y. 2016 reached 155 MT, registering an annual growth of 23%. A bulk of the incremental production has come from Odisha, where post the operationalisation of “The Mines & Minerals (Development & Regulation) Amendment Act, 2015,” a number of mines, which were closed after the Hon’ble th Supreme Court order dated 16 May, 2014, resumed production in F.Y. 2016.
During the end of this year which was a period of high ebb & flow, we hereby confirm to have a propitious upcoming year, with the strategies we have undertaken & operative measures we have taken. I thereby solicit the support & cooperation of all our Stakeholders to help us win and achieve the highest possible goals.
Mr. Suresh Kumar Agrawal,
The financial year 2015-16 was a year of various combinations like falling cost of Iron Ore, an international glut of finished steel and patchy domestic demand which made the year a hard year to survive for steel manufacturers. This year faced margin pressure due to imports from China, South Korea and other Countries. Dumping of steel by those countries has resulted in a decline in Net Sales Realisation for steel manufacturers in India
The Government of India, knowing the importance of the sector to the country’s industrial development has taken a number of steps to further encourage investment and improve the economy. “Make in India” mission is one such long term initiative which will help India to be a “Manufacturing Hub”. The Government in June made antidumping moves when it imposed an additional duty on imported steel (for specific categories) coming from certain Countries. In September 2015, it also slapped on a 20% safeguard duty to protect Indian Steel manufacturers from a surge of steel imports. With the introduction of MIP in Feb 2016, imports have started to decline, leading to a stablisation of steel prices in India. This will help steel manufacturers in India.
At MSPL, we have been consistently improving technical excellence, cost and energy efficiencies in our plant at Raigarh. We are improving our internal control and reporting system to reduce administrative & other overhead expenses. We are relentlessly taking steps in areas of logistics, repairs and maintenance, stores and spares and focusing on initiatives such as yield optimization, improvement in overall equipment effectiveness, supply chain optimization and manpower productivity improvement to optimize costs to remain competitive in the coming year.
During the year, we have converted unsecured loans of ` 120.05 cr from promoter related companies in to 6% Non Cumulative Redeemable Preference Shares of ` 10/- with a premium of ` 90/- per share. We stabilised light structural rolling mill, which resulted in increase in production of structural items to 1.19 lac mtpa, enabling us to achieve our targeted sales and significantly enrich our product mix. To improve our sales and realization, we are concentrating on the B2C segment, which would further push volumes and realizations.
During FY 2015-16 we achieved gross sales of ` 1,007 cr. and incurred loss after tax of ` 178.44 cr. Prices of finished goods has reduced during the year but the prices of raw material has not reduced in same proportion to prices of finished goods. During the year, pellet plant operated at 75% capacity, sponge iron at 101% capacity, SMS at 80%, Rolling mill at 86% , Structural Rolling Mill at 71% and Power at 71% capacity.
Looking at the sluggish demand for pellet, we have stopped operations at our 3 lac MTPA of pellet plant during the year. We have increased utilization of hot conveyor system in to billet & rolling mill to improve efficiency and reduce cost.
The availability of iron ore is gradually improving after the reopening of several iron ore mines in Odisha in FY 2015- 16. We ensured adequate and uninterrupted supply of iron ore by sourcing it from local miners. The availability of coal has also improved with the increase in production by Coal India. Coal is also easily available in international market. Besides improved rail logistics has also helped us streamline our raw material procurements.
Going forward, our focus will be to improve margins by way of operational efficiency, increased capacity utilization and financial control. We are confident in bringing profitable situation and reinforce the cash flows in coming year. I look forward to your continued support in our concerted journey to build a sustainable and value creating enterprises.
The year 2015-16 may be specially remembered as a year of slowdown for the global economy, which grew only by 3.1% as against 3.4% in year 2014. No sector made cash on the declining prices of raw materials, as inventories of finished products went up due to a fall in demand. The Global Steel market is suffering from insufficient investment expenditure and continued weakness in the manufacturing sector. With the deep integration of China in the global manufacturing supply chain, this sector has slowed as a consequence of weak growth in global trade. Manufacturing exports in emerging economies, in particular in Asia, declined owning to slower Chinese demand. Sluggish demand conditions seen across the world along with a surplus in steel-making capacity has led to a sharp decline in global prices. Besides, most of the economies have failed to report any meaningful growth despite stimulus packages by Central Banks across the world. This clearly has not been amongst the brighter and better years for steel industry.The steel industry continues to face a challenging economic environment due to the toxic cocktail of economic slowdown in China, volatility in financial markets, sluggish growth in global trade, and low prices of oil and other commodities. Although the automobile and construction sectors continue to support demand, the steel industry is reeling from high debt, and continued weakness in the manufacturing sector and foreign steel imports into the Country. High levels of imports and lower drilling activities by energy companies continued to put pressure on pricing and shipments.India produced 7.34 MT of steel in the month of September 2015, which was nearly equal to the country’s steel production in September 2014. During the FY 2015-16, India’s steel imports rose 20.2% to 11.21 MT, while steel consumption in the country grew 4.3%. The Country’s steel imports declined year on year from November to February, owing to a 20% safeguard duty applicable on imports.In addition, the steel industry is challenged by dwindling investments, turbulence in the financial market and geopolitical conflicts in many developing regions. The domestic market continues to be inundated with cheap imports from overseas producers, especially from China. The imposition of the minimum import price by the Govt of India in Feb-2016 was a temporary boost to steel prices in India, effects of which are seen to be fading away as the underlying demand continues to be sluggish. However, with consumption picking up, good monsoons and a likely increase in government spending, there appear to be some green shoots which could augur well for the industry. Despite temporary challenges, india’s long-term outlook for the Steel sector continues to be bright. The government of India is aiming to scale up the Country’s steel production to 300 million tonnes by 2025. As we look forward to a period of higher volumes and improving margins, we are confident of improving profitability and strengthening cash flows in the coming years.