India: SAIL May Adjust Production as Inventory Rises Over 2 MnT

Blast furnace steel makers in the country are staring at an acute liquidity crisis at a time when production is unabated while demand has dried up with the economic shutdown triggered by Covid-19. The inevitable result is a pile up of inventory. State-owned Steel Authority of India Limited (SAIL) has gone on record stating that it is currently sitting on 2 MnT of inventory of saleable steel as of April 21, 2020.

In an earlier disclosure the company had informed that although inventory had touched 2 MnT in October 2019, recovery in demand had started since November and the inventory level had fallen to 1.3 MnT in February 2020. However, since the imposition of lockdown since March 24 inventory levels at the company's different facilities have started piling up. Also 0.8 MnT inventory is still in process.

Gripped by cash crunch, the steel major has proposed immediate liquidation of scrap and defective inventory at its plants to pay off vendors as the funds disbursed by the corporate office is only enough to cover employee and statutory expenses, a company communication confirms.

Some financial belt-tightening is inevitable in such circumstances as the operations department has been asked to regulate further production and focus solely on production of grades that the market is willing to absorb.

Inventory pile up means cash getting stuck up when downstream demand has touched a nadir and the rapid build-up of semis at plants where downstream mills have discontinued production. So the semis inventories at the company's different facilities are surely mounting when the finishing mills are closed due to depressed demand.