By Promit Mukherjee and Sankalp Phartiyal
MUMBAI (Reuters) - India's largest steel-makers' association has urged the government to extend a relief package to the iron and steel sector, as most companies are likely to default on their loans.
The Indian Steel Association (ISA), which represents India's biggest private steel producer JSW Steel Ltd and largest public-sector steelmaker Steel Authority of India Ltd, said a large number of loans to companies were under stress and could turn into non-performing assets.
The association urged the Indian government to dole out a special steel package offering flexibility on payment of their debt.
The average operating profit margin of all steel companies in India dropped by over 40 percent in the October-December quarter, the association said in a statement on Tuesday.
The Indian steel industry, with a total installed capacity of 110 million tonnes per annum built at huge borrowings from banks, has been hit hard due to cheap imports from China and falling steel prices globally.
Total steel imports in India rose 24.1 percent between April 2015 and January 2016, compared with the same period a year earlier, mainly due to a rise in imports from China, according to data released by India's steel ministry earlier this month.
That also led to a drop in prices of steel products, according to data from NCDEX Ltd, India's second-biggest commodity exchange.
With excess capacity flooding the Indian market, domestic steel producers have cut production and prices, a move that has hurt their ability to generate enough operating profit to service their debt and working capital, ISA said.
Addressing repeated demands of the steel industry, the government on Feb. 6 imposed a minimum import price on 173 steel products flowing into India.
But that would not be enough to address financial stress in the system, after the "severe erosion" in the operating profit margin of Indian steel-makers, the ISA said.
A steel ministry official told Reuters on the condition of anonymity that the government would not want financial stress in the sector to hurt production of local makers, but declined to comment on whether the government would offer a relief package.
(Reporting by Promit Mukherjee; editing by Susan Thomas)
