‘User industry concern on high steel prices unfounded’

In short term there may be some impact due to Covid-19. As per JPC (Joint Plant Committee) numbers, steel demand in April was down at 6.7 million tonne (mt) in April as against 9.5 mt in March. This may continue till the normalcy is restored and local lockdowns are lifted. Nobody expected India will bounce back so strong after the first wave of Covid. Though many lives are lost this time, the impact is not that severe as last time. Last April, the steel demand was just 1 mt, whereas this time it fell to 6.7 mt. Covid-19 cases are already falling and the government is planning to make two billion doses of vaccines available by December. I think things will start normalising from next month.

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No. They will be back to normal once local restrictions are lifted. Nobody want to sit at home without doing business. Last year, everybody thought that the steel demand will collapse but after the first quarter of the last fiscal, it bounced back. In September quarter, the demand was 12 mt, it doubled in the December quarter and in the March quarter it was 29 mt.

Yes, for all the fundamental reasons. Price rally that are not backed by fundamentals will reverse. For instance, iron ore prices moved up from $190 a tonne to $230 in three days due to speculation and it will fall. Similarly, steel prices jumped from $900-950 a tonne to $1040 in short span due to speculation and this will come down. Prices driven by financialisation of commodity market is bound to correct. Government expenditure on steel intensive infrastructure across the globe will drive demand. On the other hand, there is no fresh supply coming in. The demand is so strong that China is importing more steel in the last few month. Though there can be price correction, it will not be sharper as it is driven by fundamental reasons.

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Their concerns are unfounded. Steel prices in India are 20 per cent cheaper than the landed cost of imports from Japan or Korea. If somebody wants to import from Europe it is stupendously high. So, I do not agree with the domestic user industry crying about high prices. In fact, it is the great time for engineering export sector which ships out about $70-75 billion of goods annually. They can source steel at 20 per cent discount from domestic market compared to their peers abroad. They will have a huge advantage.

All our cost are international. We buy coking coal and all other fuels from abroad. We are subject to rupee-dollar fluctuation. The only cost that can be attributed to domestic market is the labour which is just 2 per cent of the overall cost. We pay a high finance cost which is local. So the claim that Indian steel companies cannot benchmark to international prices does not hold water. Iron ore price has moved up for ₹2,560 a tonne to ₹6,560 in a matter of one year. NMDC is also benchmarking prices to the international market. The way NMDC is giving discount, steel companies also giving discount.

We are working on two immediate initiatives. We have set a target to reduce the cost by 20 per cent for which we have committed a capex of ₹800 crore. It will be completed in one year. We are also looking to expand capacity to 3.5 mt from 2.7 mt with ₹750 crore capex. We have also reduced debt to ₹9,000 crore from ₹10,800 crore by using the cash of ₹1,800 crore available in the company’s books. We have given a guidance of 2.8 mt production and 2.6 mt sales for this fiscal. The debt will come down further in coming days. The Supreme Court is on vacation till June 28 and we expect the case to posted in July.

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