‘User industry concern on high steel prices unfounded’

Suresh P Iyengar Suresh P Iyengar Mumbai | Updated on May 24, 2021

Seshagiri Rao, Joint MD, JSW Steel (file photo)   -  The Hindu

Seshagiri Rao, Joint Managing Director, JSW Steel speaks on steel demand and sector’s scenario amid Covid

JSW Steel has been on a dream run with fresh capacity added and soaring steel prices. Though steel demand has taken a hit due to the pandemic wave, the demand is slowly recovering with the industry mastering the art of living in Covid times. Seshagiri Rao, Joint Managing Director, JSW Steel spoke to BusinessLine on the way forward. Excerpts:

Will the current up trend in steel demand sustain?

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.

Also read: JSW Steel Q4 net soars to ₹4,191 crore

Will SMEs take time to revive from Covid impact?

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.

Will steel prices continue to remain firm?

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.

Also read: JSW Steel to set up 1,000-bed Covid hospital at Bellary

Will the government act on user industry’s concern over high steel prices?

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.

Do you agree with user industry plea to benchmark steel to international prices?

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.

How far is Bhushan Power and Steel turnaround?

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.

Published on May 24, 2021

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