Tata Steel and JSW Steel Grapple with Shrinking Cash Reserves Amid Industry Challenges

The two largest steelmakers in India are swiftly burning holes in their pockets. Analysts, therefore, get worried about servicing debt and financing big expansion plans. Tata Steel’s cash cushion fell 45% between FY22 and FY24 to ₹8,677.7 crore while JSW Steel’s cash cushion went down by 28% in the same period to ₹12,348 crore. This is data collated by Bloomberg.

This is due to the erosion of windfall gains from the steel price rise during the pandemic and, more importantly, on account of intensifying competition from China’s subsidized imports: According to analysts, property shock in China due to COVID increased exports where the import of finished steel into India increased 2.4 times whereas HRC increased 28 times between the years 2022 and 2024 These cheaper imports have squeezed margins for domestic steelmakers, therefore limiting profitability.

The pressure on the balance sheet is apparent, as free cash flow for Tata Steel, JSW Steel, and Jindal Steel and Power Limited (JSPL) has stayed in the negative in FY24. While JSW Steel and JSPL have suffered double-digit drops in profits for Q2FY25, Tata Steel’s profit sequence fell 13% while turning positive.

Steelmakers are now re-evaluating their capex strategy amidst these difficulties Tata Steel, for instance, plans to invest ₹10,000 crore annually to boost capacity to 40 million tonnes per annum (MTPA), including projects in Kalinganagar, Jamshedpur, and a greenfield facility in Ludhiana. However, MD T.V. Narendran has hinted at revisiting expansion plans due to the subdued domestic market.

JSW Steel has already reduced its FY25 capex target by ₹4,000 crore and has postponed a major overhaul at its Vijayanagar plant. It is targeting a capacity of 50 MTPA by 2030, which will require an estimated investment of ₹1 lakh crore. JSPL is continuing with its ₹31,000 crore capex plan to double capacity at its Angul plant. Despite financial pressures, the company’s long-steel product mix and relatively stable cash position have garnered investor optimism.

Analysts are cautious of the near-term outlook of the industry, keeping in mind that the pressure of steel prices is accompanied by limited export opportunities. There is a need for strategic cost management and balanced growth initiatives.