Mumbai - The steel sector, which is on a consolidation mode now under the IBC process amidst strong domestic demand, is unlikely to witness any greenfield expansion as mill-owners are likely to go in for brownfield expansion at least for the next half a decade or so, say industry players and analysts.
Domestic steel demand touched 91 million tonne (mt) in fiscal 2018, making the country the third largest consumer of the alloy in the world. In FY18, domestic demand grew by 8 per cent, while globally it grew by 5 per cent.
According to Crisil, companies with around 22 million tonne crude steel capacity are under various National Company Law Tribunal (NCLTs). These were from the first round of the stressed assets resolution process by the Reserve Bank.
These capacities have brownfield expansion potential of another 20-21 mt based on their environment clearance and regulatory filings, the Crisil report said.
"Already the flat steel space has some major players and with most of the big ones coming under NCLT, the dynamics of a more consolidated industry play out now. Also, spreads between landed and domestic prices are expected to narrow now," Rahul Prithiani, a director at Crisil Research, said.
He further said for the next four to five years, the expansion will most likely be only through brownfield development.
"Demand is expected to be quite robust at nearly 7-8 per cent. But capacity addition, except for in the case of NMDC, is largely going to be brownfield. Therefore, Tata Steel and JSW Steel are likely to put in low capex for expansion.
Currently the overall capacity utilisation of all the steel plants is 80-81 per cent, which will increase once they commence expansion," Prithiani added.
Tata Steel, which acquired Bhushan Steel (5.6 mt) through NCLT and Usha Martin speciality long steel products (1 mt) through a bilateral deal for Rs 4,300-4,700 crore, is planning to ramp up its domestic capacity to 30 mt per annum by 2025 from the current 13 mt.
While Bhushan Steel deal is closed, Usha Martin deal is yet to be completed. With Bhushan Steel's capacity of 5.6 mt, Tata Steel has capacity of 18.6 mt now.
"We will be ramping up capacity of both Bhushan Steel and Usha Martin," Tata Steel managing director TV Narendran had recently said, adding they will also be massively ramping up the Kalinganagar mill.
JSW Steel has plans to increase its capacity by 40 percent from 18 mt to 25 mt soon then further scale it up to 45 mt by 2030. This will include doubling of its Vijayanagar steel plant capacity to 23 mt from 12 mt now, as well as the Dolvi plant to 12 mt.
JSW Steel is operating out of seven locations apart from three plants which produce basic steel.
In addition to expanding the existing steel mills, the company will snap up more distressed assets, joint managing director and group chief financial officer Seshagiri Rao had said recently. The company has submitted a higher bid to snap up Bhushan Power & Steel to the NCLT.
To expand its presence in the Eastern states, JSW Steel had announced a greenfield project in Odisha, which is likely to add another 10-12 mt to its capacity.