Jindal Stainless Ltd (JSL), the country’s largest stainless steel producer, will exit its Indonesia operations due to “unfavourable market conditions” caused primarily by Chinese dumping rendering operations there unviable and high tax on exports (from the Asian nation) into key geographies like the USA and Europe. 

Operations of the wholly-owned subsidiary, PT Jindal Stainless Indonesia (PTJSI) were “breaking even” till FY23; and losses were reported in Q2FY24 (July- September) to the tune of ₹ 28 crore, which also prompted a review.

According to Abhyuday Jindal, Managing Director, JSL, the Board has in-principally approved the proposal to “explore the option for selling or liquidating  or divesting equity stake in its subsidiary”. 

The company could explore the possibility of bringing back (to India) some of the installed equipment from its cold rolling mill there. 

Jindal explained that the decision was taken “in the wake of unfavourable market conditions in Indonesia” which included a lack of a level playing field, resulting in Chinese dumping of lower priced offerings there which in turn made competition with Chinese products “difficult and unsustainable”. 

The second reason was, while Indonesia was supposed to act as an export hub for EU and the USA markets - key export nations- the dominance of Chinese players has prompted these countries to impose trade barriers - taxes on shipments coming from Indonesia - which are as high 25-35 per cent. 

“Most of the (Indonesian) market is dominated by Chinese players, and therefore, major geographies such as the USA and EU levied severe trade protection measures on exports of stainless steel products. Consequently, the situation renders PTJSI – which has an installed capacity of 12,000 tonnes per month but is operating at a utilisation of 15 per cent – unviable,” he told businessline. 

“In fact, export from India to EU or the USA will give us improved margins; and we can command better price and numbers,” Jindal explained. 

Sourcing Contract 

The winding up of the Indonesian subsidiary will not have any impact on the nickel sourcing JV that JSL has entered into. Nickel is a key stainless steel making raw material. 

JSL will invest ₹ 1,200- ₹1,300 crore, over a two year period, and have a 49 per cent stake in the joint venture (JV) company while the balance would be with New Yaking. The smelter would be located in an industrial park in Halmahera Islands.

According to Jindal, nearly “$ 60 million” (₹ 500 crore) worth of remittances have been made till September and supplies should start “around Q1FY25” onwards. The payback period is anticipated at 3-4 years. 

Ready for CBAM

JSL is also investing nearly ₹ 300 - ₹ 400 crore towards renewables and introduction of green hydrogen-based production processes. Investments are spread out over the next few years. 

The successful trial of bio-coal at the electric arc furnace in the Hisar plant resulted in an average carbon recovery rate of 78 per cent and a significant reduction in carbon emissions by 12,750 tonnes per annum. 

It recently, partnered with ReNew Power to develop a 300 MW hybrid energy project. 

According to Jindal, the company was already working with global majors and preparing itself to attune to the upcoming Carbon Border Adjust Mechanism (CBAM) of the EU. 

The transition period for CBAM - which will ultimately work towards being a carbon tax - began October 1 onwards. In the initial phase, EU importers need to report the carbon emissions made at the time of making  products that are being brought into the bloc. 

“We are 100 per cent ready for CBAM, and have started investing in renewables. Whatever is required of us, we will follow,” Jindal said. 

Although key export markets like EU and the USA continue to be “subdued” at the moment, because of recessionary traits, Jindal expects a pick up in demand Q4FY24 onwards. 

Exports accounted for 13 per cent of JSL’s volume sales in Q2FY24.

Strong Domestic Demand

Domestic demand continues to be strong, he said, adding that the company is already expecting a 20 per cent increase in production in FY24. 

White goods, automobiles, infrastructure - ethanol plants, LNG terminals, tubes and pipes, among others - are seen as strong drivers of demand for the remaining half of the fiscal.  

JSL has a current installed capacity of 2.9 million tonnes (mt) per annum.

JSL repeated a strong set of numbers in Q2, with standalone PAT (profit after tax) rising by 75 per cent YoY to ₹ 609 crore (vs ₹ 349 crore). The earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 54 per cent to ₹ 1,070 crore. Net revenue for the quarter ending September 30 increased 14 per cent to ₹ 9,720 crore. 

“Domestic sales are up 15 per cent YoY for us. But there continues to be a concern surrounding Chinese imports that surged by nearly 55 per cent, YoYwhich have had an impact on the sector (particularly on hollow stainless steel making),” he said. 

The Board of Directors also approved payment of interim dividend of 50 per cent, that is, Re 1  per equity share (face value of ₹ 2 each) for FY24. The aggregate payout will over ₹ 82 crore.