RINL capacity addition faces cold demand

Rashtriya Ispat Nigam Ltd (RINL), a Navratna steel company, is set to hit the market with an array of new long steel products with the commissioning of its new capacity this month.

RINL, the corporate name for Vizag Steel, is ramping up capacity at its Vishakhapatnam plant to 6.3 million tonne per annum (mtpa) from the current 3 .6 mtpa. The expansion would make RINL one of the biggest producers of long steel products in the country. Steel dealers and traders, however, say there is no demand currently to absorb such a huge capacity.

“There was an expectation that the market will improve after the Budget but there is so much uncertainty that new projects are not being announced and others are going slow,” said a prominent dealer of long products in Mumbai.

He said RINL is one of the few companies which have been on track with its expansion, but the capacity is coming up at a time when the demand is not showing any improvement.

India is expected to see a sudden spike in domestic steel capacity in the next 12 to 18 months as the top four steel players - SAIL, JSW Steel, Tata Steel and Essar Steel - will be coming up with their expanded capacities, but most of it is in flat products. However, RINL’s entire new capacity is focused on long products segment.

“I think the demand is slowly picking up and we are confident of selling the product in the market because of our brand and quality,” said A P Choudhary, chairman of RINL.

He said the company will hit the market with the first batch of products by the end of April and is targeting close to Rs20,000 crore in revenues this fiscal by virtue of the new capacity. For the year ended March 2012, RINL posted a topline of Rs14,457 with a sales growth of 6.5%.

But dealers are not convinced.

“It will take at least three months for banks to take the cue and follow suit in cutting lending rates. Till then the market will continue to be in a severe liquidity crunch, especially in the construction segment where none of the projects are really picking up,” said another dealer and president of a steel association in Mumbai.

He said inventory levels are down and prices are holding steady on almost all product segments in steel because companies are not pushing forward with their expansion plans.