Added capacity will counter price drop: JSW Steel

We have two captive and two merchant iron ore mines in Odisha. The captive mines, which are very close to the Monnet plant, can sell to a third party only after meeting captive requirements. Despite being a jointly controlled company, supply to Monnet was not possible. After the merger we can supply iron ore from any mine. This will save ₹20 crore in freight cost. Monnet buys coke from the market, including from group company Bhushan Power and Steel. JSW Steel, which will commission 10 mtpa coke oven plant at Vijayanagar this year, can supply excess coke to Monnet and it will be cheaper. This apart, Monnet will save at least ₹25 crore in administration cost. Monnet has rolling capacity of 0.95 million tonnes, which is being expanded to 1.2 mt. Of this, they have 6-7 lakh tonnes of slab capacity but not the rolling facility. The excess slabs at Monnet can be rolled into plates at Anjar (Gujarat) and sold at a higher price. The marketing initiative of our Salem unit and Monnet can be combined as they produce similar products. The weighted rate of interest of Monnet is 8.5 per cent on ₹2,400-crore debt. Whereas JSW Steel weighted average cost of interest is 5.8 per cent, and there will be at least one per cent saving on interest cost. The overall annual saving would be about ₹150 crore.

Our plan was always to merge the taken over stressed asset with the parent company once the turnover is completed. Monnet made ₹490 crore Ebitda last year. Its capacity will increase to 1.2 mt by September. The company, with such big capacity, cannot be operated without proper sourcing of coal, coke and OEM [original equipment manufacturers] facility. We have to make more investment... (otherwise) it will have a problem in meeting the volatility. Whether upcycle or down-cycle it is always better to be part of a bigger company to tap the synergy.

In 2008, the government had imposed export duty of 5-15 per cent. It was for one month for flat products and five months for long products. Inflation then was 11 per cent and today it is 15 per cent. We consider this a temporary move and not sustainable in the long term. Except for Russia, no country has implemented it on steel. Even Russia removed the 15 per cent export duty last December. With a lot of effort, the industry has managed to increase exports from 5-6 mt in 2008 to 18.4 mt last fiscal. On the other hand, imports had fallen from 7 mt to 4.8 mt in the same period. Industry capacity has increased from 60 mtpa in 2008 to 150 mtpa. The industry has created the export market painstakingly. So the duty has to be withdrawn as early as possible.

Domestic prices are in line with the international trend, which has fallen by $100 per tonne in the last 45 days. The domestic prices are equivalent to imports or slightly at a discount to the landed cost of imports. Indian steel fluctuates in line with the landed cost of imports. We have added 5 mtpa of fresh capacity and this will make up for the price drop. It will be a volume game for the company. To make up for 18 mt of exports, the industry can target replacing 5 mt of imports that were on before imposition of export duty. There is a domestic demand growth of 7.8 per cent in this fiscal and this will translate into an incremental demand of 8 mt. So if the industry can achieve this, it adds up to 13 mt.

There is a lot of volatility. Coking coal came down by $55 per tonne. Many European countries, Taiwan, Japan and Korea do not want to buy from Russia. They are buying from Australia, the US, Colombia and Canada. That was why coal prices hit the roof. The coal from Russia is looking for new markets. If Russia can re-route the trade and India facilitates it, things will become normal. Logistics and shipping insurance are the major problem for India in sourcing coal from Russia. In April 2021, coking coal prices were $110 a tonne; it touched a high of $600 and has fallen to $460. It will come down further. NMDC has reduced iron ore prices by ₹750 a tonne and we expect it to fall further. Iron ore export duty of 50 per cent has been levied on 58-plus per cent Fe and 40 per cent duty on pellets.

It will be better for miners to sell in the domestic market as the net realisation will become zero or negative if they export. International iron prices have been falling. Even without the new export duty, it will not be profitable if they have to incur a port, logistics and freight cost of $25-30 a tonne to China. Mandatory online sale of iron ore through auction has been removed, but the production cap is maintained at 35 mtpa.