Companies

The areas of concern in the last quarter are slowly fading: Seshagiri Rao

Suresh P Iyengar Mumbai | Updated on October 28, 2020 Published on October 28, 2020

The Joint MD of JSW Steel on shot-term challenges and revival post-Covid

Sajjan Jindal-led JSW Steel has added one more feather to its cap by acquiring Asian Colour Coated Ispat through a long-winding insolvency process. However, short-term challenges such as high debt and uncertain demand revival post-Covid continue to test the company’s calibre. Seshagiri Rao, Joint Managing Director, JSW Steel, in an interview with Business Line explains the way ahead. Edited excerpts:

Do you expect the demand revival to sustain?

Absolutely. The areas of concern in the last quarter are slowly fading. The auto sector is showing signs of revival, while we registered the highest ever quarterly sales in colour-coated products. These two sectors have seen 93 per cent growth quarter-on-quarter and 33 per cent growth year-on-year. Besides the talks of pent-up demand, we have seen recovery in retail sales, especially in Tier-II and -III cities. The economic stimulus is clearly targeted at rural growth. Two-wheelers, tractors and other agriculture implements sales are going up. Passenger-vehicle sales has also picked up, the only piece missing is commercial-vehicle sales. But even without the support of the commercial-vehicle segment our sales to the auto sector has revived strongly.

Is the possibility of a second wave of Covid a concern?

Today, the good thing is everyone has understood that they have to live with Covid. Everyone in the society is following social distancing, wearing masks and cleaning their hands at regular intervals. I do not think there will be another round of complete lock down like before. The government has spread the awareness to live carefully. There may be some slowdown due to restrictions in Covid affected zones. Cases near our factory has come down to below 40 and no new cases are added. The containment zone has been removed.

Do you see improvement in capacity utilisation?

We are not able to improve utilisation — not because of Covid, but due to non-availability of iron ore both in Odisha and Karnataka. With the shutdown of Donimalai, seven million tonnes (mt) of iron ore supply are wiped out. There was a lot of rain in the mining areas of Karnataka. Production in Dolvi was impacted by short supply from Odisha, which produced 30 mt less iron ore in first six months of this fiscal, and exported 10 mt more. It is a big problem for steel companies. Of course, we were less impacted as we have four captive iron ore mines. Otherwise, it would have been a disaster.

Why are iron ore miners claiming that they have a surplus stock of 100 million tonnes due to weak demand from steel companies?

If they have surplus stock, why have they not exported it before March-end? Iron ore exported in the first half of last fiscal was 10.6 mt, and the same this fiscal year has almost doubled to 20.5 mt. If they claim there is 100 mt of inventory, why have they not exported it? The problem was logistics. We are also not able to increase production at our mine and bring it to Dolvi because commercial miners have blocked all the avenues of logistics to meet their export obligation. The actual cost for transporting of ore to Dolvi from Karnataka works out ₹700 a tonne, but commercial miners are paying ₹1,400 and blocking all the transport as they do not have to pay any premium for extracting ore like us. Domestic industry cannot afford this kind of transport charges. Even companies in the secondary sectors such as sponge iron and long product makers are worried. There is an iron ore short fall of 30 mt in domestic market and 10 mt is being exported.

Do you agree with miners’ claim that there are no buyers in the Karnataka e-auction?

There was no e-auction from September 20- to October 20. In the e-auctions on September 14 and 16, the prices were so high that nobody wanted to buy. In Chhattisgarh, the NMDC is not producing to its full capacity due to rains. The Chhattisgarh government renewed NMDC mines with a condition that iron ore demand within the State should be fulfilled first, then that of the PSUs RINL (Rashtriya Ispat Nigam) and KIOCL (which has a beneficiation plant), and finally pipeline customer ArcelorMittal. After fulfilling all these demands, there is nothing left out for open market.

Odisha has auctioned lot of mines in April...

Of the 19 operational mines auctioned in Odisha after March, only five, including four mines of ours and one of ArcelorMittal, have restarted production. The government should take action against miners who have bought the mines in auction and not started production. Another problem in Odisha is that one cannot evacuate more than 80-90 mt from the State. Logistics is a major concern.

Why is JSW Steel not buying Karnataka iron ore?

The iron ore in Karnataka is of lower quality. So we set up a 20-mt beneficiation plant and started using it. We can do the same with the Odisha ore. A benefication plant can be set up in 16 months, and the investment is also not huge. Over and above iron content, the alumina and manganese content in the Karnataka iron ore is very high. For every 1 per cent change in alumina, there is a $8-discount or premium in pricing. The alumina content in Karnataka ore is about 5.5 per cent. If alumina content is more, we have to spend more fuel to remove it. So it should be at a discount. Since the NMDC, the largest producer in the State, does not reduce price for alumina content, private miners are also following the same.

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Published on October 28, 2020
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