The steel industry is passing through a challenging time with a slowdown in demand from the real estate, infrastructure and automobile sectors.
The recent Government announcement to re-look and clear all the infrastructure projects awaiting approval should offer some relief. However, the sudden rupee depreciation against the dollar has caught many corporate honchos by surprise.
India should stop worrying too much about the rupee, current account deficit and external borrowing and focus on measures to boost manufacturing and rejuvenate domestic demand, M.V.S. Seshagiri Rao, Joint Managing Director, JSW Steel, told
What has changed so much for such sharp rupee depreciation?
The depreciation is largely driven by speculation.
A run down of the rupee from the 55 to 60 level is not justifiable. Agreed that the current account deficit (CAD) is high, but for a developing country like India it is not that bad. We have to see whether CAD is manageable at the current level. It has gone beyond the comfort level because of high crude and gold imports. The Government has already taken remedial measures to restrict inefficiency in the usage of these two items. We have already seen gold imports falling in May.
Similarly, linking petroleum product prices to the international market is a very bold step. The trouble in external economy led to lower industrial commodity price, which is good for India.
Even as CAD was moderating, the rupee suddenly depreciated. Having taken measures to control CAD, the Government should now focus on domestic investments in manufacturing.
You have sought shareholders’ approval to increase the borrowing limit by 60 per cent to Rs 40,000 crore. What is the reason?
We have completed the merger of JSW Ispat Steel with JSW Steel. Besides opening up many business opportunities, the consolidation process has brought in an additional debt of Rs 7,000 crore on JSW Steel books, taking our consolidated debt to Rs 28,000 crore. The entire debt is repayable over 10 years. So we do not have any immediate fund-raising plans. We thought it fit to seek shareholders’ approvals now rather that going to them when needed.
Do you have plans to raise funds abroad after the rupee depreciation?
No. With the recent rise in US treasury yields by 60-80 basis points, I do not think there is an opportunity to raise long-term funds. The lending rate difference on a fully hedged basis negates all the benefit.
How is the steel demand?
When India registered a GDP growth of five per cent last year, steel demand growth was up just three per cent. Imports grew 15 per cent. The truth is, steel demand has not kept pace with economic growth.
Is the weak rupee helping to keep steel price firm?
We have increased prices marginally for flat products due to an increase in operational cost. Imports have slowed down after the sharp rupee depreciation. International steel prices have also come down significantly in the past few months due to weak demand. Steel demand for select products in domestic markets remains sluggish. The auto sector is not doing well. Infrastructure projects are stuck at various levels due to want of funds or government approvals. Real estate, which drives about 60 per cent of steel demand, is also not in good shape. Overall, the steel demand growth is very weak.
What is the progress on the West Bengal project and expansion in Karnataka beyond 10 mtpa?
We are waiting to tie up iron ore for this project before we can proceed further. In the meanwhile we are spending on exploration of coal block allotted to us in West Bengal. We will be spending Rs 600 crore in the first phase of the West Bengal project. As for Karnataka, we are going ahead with plans to produce electrical steel, a specialty steel product, but there are no plans to increase the steel production beyond 10 millions tonnes per annum (mtpa).