Indian Railways opens door to private steel manufacturers.
New Delhi: Steel Authority of India Limited’s ability to scoop up a mega order from fellow PSU Indian Railways is under doubt just when it is ramping up its rail production capacity; a move that may end the monopoly of state-run supplier Steel Authority of India Ltd., as Asia’s oldest network seeks to plug a supply shortfall.
Indian Railways has floated a global tender for 7,00,000 tonnes, putting pressure on SAIL.
“We floated a global tender on October 12 to procure seven lakh tonne additional rail, which will help us to ensure that the backlog of track renewal is cleared,” Railway Minister Piyush Goyal said. “We were not able to meet the demand for track renewal due to shortage of rail.”
Potential bidders have been asked to attend a session on November 21 on technical and commercial criteria of the tender, with the deadline for submission put at December 22.
SAIL supplies tracks to the national carrier. The annual crude steel capacity of SAIL, which was 14.3 million tonnes (mt) in 2015-16, would be ramped up to 50mt by 2025.
Steel minister Birender Singh has asked the PSU to ramp up production from its new rail mill in Bhilai.
“The company should chalk out a time-bound action plan to cater to the Indian Railways’ increasing demand. SAIL must take its joint ventures at international level to logical conclusion at the earliest. The company must leverage its position in the industry, instead of not being able to fulfill its commitments and agreements,” he said
Expecting demand to surge, local steelmakers have lined up expansion plans.
The country’s annual steel capacity now stands at 126mt and is forecast to rise to 150mt by 2021.
During the monsoon session of Parliament, minister of state of railways Rajen Gohain had said, “Rail requirement that is not met by SAIL is amenable to procurement from (alternative) sources”.
“For the year 2017-18, SAIL has committed to supply 11.45 lakh tonne rails. The balance requirement of about 3.14 lakh tonne is under consideration for procurement (from sources other than SAIL),” he had said.
Private steelmaker Jindal Steel & Power Ltd welcomed the government’s decision. “We are the only other supplier in India for rails, so it is a clear advantage to us,” Kapil Mantri, the corporate strategy and business development head of Jindal Steel & Power said. He added that the company had the capacity to produce eight lakh tonnes of rail and universal beams.
Jindal Steel & Power Ltd., one of the biggest non-state steelmaker, may benefit as it’s the only other local producer of this grade, according to Goutam Chakraborty, an analyst at Emkay Global Financial Services. “If Steel Authority cannot supply, then they will go in for other producers. So in that way, JSPL will definitely be benefiting,” Chakraborty said by phone from Mumbai. “The railways’ first preference will always be Steel Authority.”
The tender gains significance as Steel Authority and Jindal Steel have been trying to boost market share and profits after reporting losses for at least two straight years even as they battle high debt levels. Indian Railways expects annual demand for steel rails to rise to 1.5 million tons in the year ending March from about 800,000 tons in the prior 12-month period.
Jindal Steel has long been striving to make inroads into the segment. The company has the capacity to produce 800,000 tons of rails and universal beams, said Kapil Mantri, head of corporate strategy and business development at Jindal Steel.
We are the only other supplier in India for rails, so it is a clear advantage to us, Mantri said by phone from New Delhi.
Steel Minister Birender Singh Wednesday asked the state-owned steelmaker to ramp up production from its new rail mill in Bhilai to meet the requirements of its major customers. The company should chalk out a time-bound action plan to cater to the Indian Railways™ increasing demand.
The tender can put pressure on Steel Authority to ramp up production from the plant at a faster pace, according to Emkay’s Chakraborty. Steel Authority didn’t immediately respond to phone calls and an email seeking comment.
Expecting demand to surge from railways to housing, steelmakers have lined up expansion plans. Annual capacity stands at 126 million tons and is forecast to rise to 150 million tons by 2021, before settling at 300 million tons, according to Steel Secretary Aruna Sharma.