Asia's Oldest Railway Opens Door to Private Steel Producers
(Bloomberg) -- Indian Railways has floated a global tender to procure rails, 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.
The state-run freight and passenger carrier is seeking to buy 700,000 metric tons of rails for track upgrades, Railway Minister Piyush Goyal said. The move will ensure steady supplies and competitive prices. 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,” Chakrabortysaid by phone from Mumbai. “The railways’ first preference will always be Steel Authority.”
Prime Minister Narendra Modi is pouring about 8.6 trillion rupees ($132 billion) to upgrade the aging lines of the network that was started under British colonial rule. Giant track-laying projects are underway to modernize passenger and freight movements to cut travel time.
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.
Shares of Jindal Steel jumped as much as 1.4 percent to 170.45 rupees in Mumbai. They were little changed as of 10:45 a.m. Steel Authority erased losses of as much as 2.6 percent to advance 5.9 percent. The benchmark S&P BSE Sensex Index traded 0.2 percent higher.
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.
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