BL interview. Steel demand will improve in second half of this fiscal: JSW Steel’s Joint MD

The demand in India was fundamentally good, driven by manufacturing, energy, and automotive. It was also evident that the channel was destocking because the prices came down. So, therefore the channel was reducing inventories. I think destocking is now completed and prices have bottomed out. It has shown an uptick. We expect the demand to continue being positive. The volumes in the second quarter will now improve on restocking. We may see some impact on demand from construction and infrastructure sectors because of rains.

Inventory went up due to destocking by the stockists and the recent cyclone has disrupted supplies to the port. In the western region, some of the customers were not able to take the material. These inventories will get liquidated in the coming quarters. We do not see too much of an issue. In the March quarter, we had liquidated 3.50 lakh tonnes of inventory.

Some part of the inventory was to be rebuilt again. The cost has been going down because the coking coal and iron ore prices have moderated. This benefit will flow in the second quarter and this will offset the exit prices. Demand in the first half of the fiscal is typically about 45 per cent and the remaining comes in the second half. We will have more to sell as BPSL capacity expansion from 3.5 million tonne to 5 mt will be completed in second half.

I do not think so. The demand is growing 8-9 per cent annually, which means an additional demand of about 10-11 mt every year. In 3-4 years, it would mean about 45 mt of additional demand. So, capacity additions are happening over 3-4 years. Even after increasing capacity, the ramp-up takes time. The growing Indian demand will be able to absorb the domestic capacities. There may be a little bit of lag but otherwise, we do not see it as a concern from the current capacities being planned.

In the medium term- let us say the Indian economy is supposed to triple three times by 2032- there should be no reason why we cannot triple the consumption. If the economy becomes $10 trillion from $3 trillion, then the demand probably will be growing much faster than the economy. During the nation-building phase, the elasticity of steel demand to GDP was 1.5 per cent in China and Japan. In India, we reached that range in the last two years and are reaching almost 1.8 per cent.

This decade, I believe, is the national building phase for India because of the way manufacturing is expanding. The international supply chain realignment is positive for a lot of companies. The government is focusing on infrastructure development. About 600 km of metro lines are approved for construction. With this kind of development, we may run short of steel capacity.

Imports have increased because of exports by China. The demand there was subdued and their production was more than demand. However, Chinese daily production is going down. They have already decided to cap production to last year’s level. This means that they have to cut output by 60 mt in the second half, which translates to 10 mt of production cut a month.

Even if part of this plays out, it is a huge positive for the global steel industry. Chinese inflation is very low. China plans to give some policy support that should support steel prices. However, rising imports into India are a concern and remain monitorable. Domestic steel prices have fallen while international prices are moving up. So, there is not much meaningful gap to import.

It would support steel prices and bring down raw material demand. They are the largest importer of iron ore and coking coal. It imports 80 per cent of coking coal requirement from Mongolia and Russia. To that extent, the supply of cooking coal supply from the rest of the world would be freed up and prices may come down. It will also help global steel prices to stabilise in the second half of this year.

There are certain problems in making the coal mine operational because there is a river flowing through it and a railway line cutting across the asset. We cannot shift those lines because there is a forest area around it. We are trying to take a report from agencies. We are evaluating various options and discussing with the Ministry how we can take this forward.