Maharashtra’s Jalna Steel Industry Trapped in Overall Market Slowdown

Maharashtra’s Jalna is one of the biggest hubs of steel industry in Central India. However, the town in Marathwada has been hit by the economic slowdown in a multitude of ways. Clouds of stress are over the sky of opportunity in Jalna.

DB Soni of Metaroll industry is a leading entrepreneur in the town. His company has a turnover of Rs 850 crore. Being a first generation entrepreneur, Soni knows about the finer details of his industrious town. "We call him as a guide for our city's industrialists,” said another entrepreneur, Dinesh Rathi of Rajuri Steel.

"There are two most serious issues before us right now. First is reduction in consumption of steel by the real estate sector. This is happening because the real estate sector is facing multiple issues, including NPAs (non-performing assets) and tremendous slowdown, which affects their demand of steel. This in turn is adversely affecting us," Soni said.

Jalna has a total of 19 mega set ups of steel. There are almost 40 small dependent set ups within these 19. Due to the presence of heavy industry, transport is also a major dependent industry in the town. Nearly 20,000 people are getting direct and indirect employment through this.

"Now, two companies have been shut down. You see, any such business needs to be run with full capacity. If we go down even to 80% capacity, it can have a big effect. These two companies were not getting any business. So, under stress they had no other option but to shut down," Soni added.

Also read: Economic Freefall: Growth in 8 Core Industries Slides to 2.1% in July from 7.3% Last Year

But the steel industry has not been witnessing a steep downfall in growth like other industries. Recently released data about eight core sectors shows that the steel industry is down from 8.9% in July 2018 to 5% in July 2019. However, it being a mega industry, its slowdown comes at a huge price for the economy.

History of Jalna Steel Industry 

The history of the city’s steel industry can provide a better perspective to the current situation. The steel business started with one set up in 1964. The then pioneer in the steel industry had direct business in condemned rail (scrapping of rail compartments). At the time, the capacity of daily steel production was 4 tonnes per day.

Following the success of the first company, other people started setting up their plants. By 1970, the city's other entrepreneurs had entered into ship breaking as well as other possibilities of steel generation.

Most of the work used to be done manually at that time. Steel would be melted in an arc furnace. However, with the introduction of technologically advanced equipment like induction furnace helped increase the capacity of production upto 150 tonnes per day by 1997.

Since then, the city's industry has been rising. By 2005, the production increased upto 350 tonnes per day. Computerised system and automation brought a new lease of life to the industry and by 2013, the production went upto 600 tones per day. By 2018, the production had jumped to 1 lakh tonne per month.

The Current Scenario

However, the jump in production downed the costs of steel, leading to a ‘problem of plenty’.

If one looks at the price of steel per tonne, it was Rs 39,000 in April 2013, Rs 43,000 in November 2014, which went down to Rs 25,000 in October 2015 (this was a drought year), and remained at Rs 25,000 in November 2016 (demonetisation). The price boomed back in July 2018 upto Rs 45,000, but has been on a downfall since then, falling to Rs 34,000 at present.

These fluctuations show two things. Demonetisation broke the backbone of entire economy. This brought the steel industry under stress. But when it was recovering by 2018, the interdependent business chain of real estate and road building started going down. As a result, the steel industry has been affected and this is reflecting in the core sector’s growth numbers.

Also read: Gujarat’s Steel Furnace Industry To Be Next Victim of Economic Slowdown

Soni also said that despite GST there was no adverse effect in their business. In fact, there was a 2% sales tax for interstate sale which was removed both in purchasing of steel as well as in selling.

These enterprises were expecting more activities in the market by end of this year. "Rains were good this time. So we were expecting more work in rural part which will ultimately benefit us," said Dinesh Rathi.

However, all the entrepreneurs in Jalna steel industry are under stress now. “It has started affecting our pocket. The profit ratio is down. If this continues, we cannot implement newer technologies in the plant. New projects are also being stalled. We need to keep it in mind that we cannot come out of this phase unless the overall economy improves,” Soni said.