During the fiscal years 2022 to 2024, Tata Steel and JSW Steel experienced notable decreases in their cash reserves
Tata Steel and JSW Steel: Two prominent steel manufacturing giants, well-known for their dominant presence in India’s metal industry, are currently grappling with significant financial challenges. Recent financial reports have unveiled a troubling decline in their cash reserves over the past two fiscal years, largely due to escalating competition from subsidized Chinese imports and market pressures following the post-pandemic steel price correction.
Impact of Imports
Tata Steel’s reserves plummeted to Rs. 8,677.7 crore in FY24, marking a 45% decrease from FY22. This decline can be attributed to China’s post-COVID property crisis, which resulted in overcapacity and a surge in steel exports. The influx of cheap, government-subsidized Chinese steel imports reached an eight-year high, undercutting the profits of domestic steelmakers.
Between 2022 and 2024, China’s finished steel exports to India surged by 2.4 times, while hot-rolled coil (HRC) imports skyrocketed by 28 times, creating significant price pressures on the domestic steel industry.
Challenges and Future Prospects
JSW Steel reported double-digit profit declines in Q2FY25, while Tata Steel experienced a 13% sequential profit decrease despite returning to profitability. Analysts are exercising caution, pointing to weak post-festive demand, low steel prices, limited exports, and China’s subdued stimulus as ongoing concerns.
In FY24, JSW Steel’s reserves dwindled by 28% to Rs. 12,348 crore. Both companies continue to face negative free cash flow, reflecting the persistent challenges in the industry.
Capital Expenditure
The diminishing cash reserves and shrinking profits have constrained the ability of steelmakers to pursue ambitious capital expenditure (capex) projects. Tata Steel is reassessing its capex plans in light of cheap imports and pricing pressures. Managing Director T.V. Narendran noted that the current EBITDA levels in India do not justify large-scale investments.
The company has existing capex commitments in India, the UK, and the Netherlands, including major transformations at its Port Talbot and IJmuiden steelworks.
Future Plans:
Tata Steel in India is set to invest Rs. 10,000 crore each year to enhance its capacity to 40 MTPA, with projects in Kalinganagar, Jamshedpur, and Ludhiana. On the other hand, JSW Steel has adjusted its FY25 capex target by Rs. 4,000 crore and aims to make investments totaling Rs. 1 lakh crore by 2030 to achieve a capacity of 50 MTPA.
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