After a sluggish December quarter, steel demand was expected to bounce back this quarter. The hike in lending rates amid rising inflation is a key concern. Steel exports were impacted by the global recession. businessline caught up with Seshagiri Rao, Joint Managing Director, JSW Steel to ascertain the market condition. Here are edited excerpts.
Has steel demand bounced back?
Steel consumption in the first 11 months of the financial year was 107 million tonne (mt) at an incremental demand of 1 mt per month on an average. The momentum continued in last two months. The production in the same period has gone up by five per cent compared to last year. The only issue was with exports which have fallen 52 per cent to 6 mt. On the other hands imports are up 32 per cent. Despite the buoyant domestic demand, the industry is left with 2 mt of steel inventory which could not be absorbed notwithstanding good growth in demand. Manufacturing in India is quite encouraging given IIP number. Global economy is not doing well that is why exports are falling.
Has JSW Steel managed to reduce inventory?
I cannot reveal the numbers now but I can say we have attempted to reduce the inventory. Exports were better than quarter-on-quarter. In December quarter, exports was hit. So, March quarter exports will be higher than the previous quarter, but year-on-year it will be lower. Even if the same momentum of 11-12 per cent demand growth continues, it will be an incremental demand of 10-12 mt. There will be enough domestic demand even if exports do not pick up.
Will the capacity utilisation fall as few steel companies will complete their expansion this fiscal?
There will be extra supply from JSW Steel as the newly added 5 mtpa capacity is ramped up. Bhushan Power and Steel expansion will get completed which will lead to incremental supply of 1.5 mtpa by middle of this year. Tata Steel extra production will come next fiscal. NMDC may have addition 3 mtpa if they complete the project. JSPL is also targeting to complete 3 mtpa expansion later part of this fiscal. JSW Steel Vijayanagar expansion of 5 mtpa will be completed by end of this fiscal. Overall, there will be 4 to 5 mtpa extra supply in the coming fiscal and this will be easily absorbed given the 11-12 mtpa of incremental demand every year.
Will the global recession hit exports?
No. The major steel exporting countries such as Ukraine, Russia, Japan, Korea and China are in trouble. Ukraine steel production has plunged. Exports from Russia is difficult as they are facing economic sanctions. Chinese exports are not increasing. Japan and Korea are also not exporting like in the past as they have their own challenges. While steel demand in Europe has fallen, the production has plunged even steeper. India steel exports to Europe has increased due to their ban on Russia. India can also tap into West Asia, Africa and Latin America besides some part of Asia where China was dominant.
Will rising imports upset the apple cart?
No. As long as India prices are in line with the landed cost of imports it is not a concern. In this month imports may drop slightly as global prices are much higher than local prices. So that is the reason why imports may not increase. Today domestic prices are at a discount to imports. .
Why should domestic prices be at discount, when demand is good?
Domestic prices are at discount to discourage imports. Particularly the duty free imports from Japan and Korea. There is no protection for domestic industry under Free Trade Agreement. Tomorrow, some Australian company can export steel to India duty free. Even otherwise, about 60-70 per cent of imports in India are duty-free under FTAs.
Can Australia do a Russia by exporting cheap steel?
Manufacturing is not very big in Australia as it is very expensive to produce there. Australia makes more money by exporting the raw material than getting into value addition. Countries which have excess raw material have not succeeded in value added production as the commercial costs are very high. Some of the automobile companies which had set up units in Australia are shutting down due to high labour cost. The exchange rate will be strong in countries with raw material.
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