As steel cycle turns south, buyers of distressed assets will be forced to redo math

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26 Aug, 2025 12:21

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A downward movement in the steel cycle could disrupt plans of companies that have won, and bid, for stressed assets in the domestic industry.

In December, steel prices in the domestic market hit their lowest mark in one year. The fall has been equally steep in China, the world's largest producer and market for steel. Prices in the Chinese market have fallen by over 10 percent in the last two months.

"This is a problem for those who had won distressed assets and are now trying to turnaround these loss-making units," said a senior executive of a private steelmaker.

"Many of the turnaround plans were formed on the basis of current steel prices. If prices continue to fall, this will disrupt the whole financial model and delay the turnaround process," the executive added.

Steel companies formed a large chunk of Reserve Bank of India's first list of defaulting companies that were referred to the National Company Law Tribunal. Of these, Bhushan Steel (bought by Tata Steel), Monnet Ispat (JSW Steel) and Electrosteel Steels (Vedanta) have been resolved.

The falling rates will also impact ongoing cases of distressed assets, as bids are again decided on market conditions. Two biggest of these are Essar Steel and Bhushan Power & Steel.

While ArcelorMittal and the Ruia family are in contention for Essar Steel, JSW Steel, Tata Steel and Liberty House are engaged in a three-cornered race for Bhushan Power & Steel.

Subdued outlook

Earlier this week, global brokerage firm CLSA downgraded stocks of JSW Steel and Tata Steel to "sell" due to weak Chinese demand.

Following the downgrade, shares of the two steel major fell on the morning of January 2. The fall reflects the nervousness in the industry, which for over a year had been riding on high steel prices.

The sobering environment in China clouds over the whole economy. For the first time since May 2017, the country manufacturing indicator went below a 50 reading, to 49.7.

Turnaround plans

All the three winners - Tata Steel, JSW Steel and Vedanta - have initiated steps to increase production and efficiencies of units they acquired through the insolvency courts.

JSW Steel has drawn a three-phase turnaround plan for Monnet Ispat, including restarting many of the units based in Raipur.

Tata Steel, which raised debt of Rs 16,000 crore for the acquisition of Bhushan Steel has taken steps to improve the latter's operations.

Similarly, Vedanta will be raising debt to invest as much as $3 billion in Electrosteel.

Each of these plans is based on an estimated cash flow generated through selling steel. A continued fall in prices though will force the companies to rework their numbers.