After the Naveen Jindal-controlled Jindal Steel & Power announced a net loss of Rs 355 crore and the Union government raised the import duty on steel products by 2.5 per cent, Ravi Uppal, chief executive officer and managing director, JSPL, spoke to Jyoti Mukul & Deepak Patel late Wednesday on the problem areas still gnawing the steel sector. Edited excerpts:
Is the duty increase enough to guard domestic steel from cheaper imports?
It is a step in the right direction but not adequate. The prices quoted by the Chinese and Koreans and Russians are unbelievable. Everybody wants to export here. China has a total capacity of 15 billion tonnes a year and are producing 850 million tonne but
India had annual capacity of 114 million tonnes at the end of March, of which we produce about 80 mt. India’s demand in 2012-13 and 2013-14 had not grown. There was only 0.5 per cent increase in demand last year but Chinese imports increased manifold. In the third and fourth quarters, it will perk by five to six per cent. We imported 10 mt from them last year and 3.4 mt in the first four months. So on an annualised basis, we would be importing 10-11 mt.
Indian companies cannot take the advantage of increased demand even if they want to. Even if demand comes, the benefit will go to others. Prices of various grades of steel have fallen globally. Therefore, it is very vital to ring-fence the Indian industry against imports.
This kind of increase of five per cent is not adequate. We are looking at safeguards duty. Japan, Koreans, Canadians and the US have done it. If everyone else can do against Chinese imports, why not us? Why should we be so bashful? We do not have much time; the government needs to act swiftly.
Why cannot Indian industry bring down prices?
It is not possible. If you look at the Ebitda (earnings before interest, taxes, depreciation and amortisation) levels or operating earnings of all companies, it has fallen. We were at 30-32 per cent and it has fallen to 23 per cent in just one quarter. It’s not that our production has become less effective. Our costs have fallen because iron (ore) fines (prices) are more economical than six months ago but the fall in prices (of steel) is sharper than the cost of production There is huge erosion of margins. If the trend continues, it will go to negative for all steel companies.
The health of the steel industry is critical to the country’s growth. The industry contributes 2.6 per cent to our gross domestic product. No large country’s infrastructure has been built on imported steel. The Chinese were not building during their Olympics by importing steel from Japan. Similarly, Korea, Japan and the US have always had local sources of steel. The mining industry -- iron ore fines and lumps -- is critically dependent on steel. The railways are dependent on iron ore and coal. Then, there is services, heavily banking on the steel industry.
JSPL’s losses have been coming down over the past three quarters. Is the situation improving for the company?
If you look at the Ebitda level this quarter, these are better than the earlier one. It was 19 per cent in the fourth quarter (January-March). We have taken it to 23 per cent in the first quarter (April-June). This was possible because our product mix was favourable. We produced more of rails and heavy and medium structures, which give more margins. Our pelletisation units were running and the volumes were higher than the fourth quarter. Our interest cost is Rs 700 crore and the Ebitda level is Rs 1,020 crore. We were able to get an Ebitda level by which we could service our debt.
What is the debt level?
It has gone up by about Rs 1,000 crore to Rs 43,000 crore. We are (now) determined not to increase our debt level. This is why we are not taking any new major projects but the old ones have to be completed.
How do the coming quarters look like?
In 2013, we made a quantum leap in capacity addition. The Tamnar (in Chhattisgarh) unit's capacity was increased to 1,300 Mw; likewise in steel, we had a capacity of three mt and today it is eight mt. But, when the time for harvest came, the market went into recession. We did not have the opportunity to benefit.
If the market condition revives, we will certainly be in a position to improve the total output. Even in the last quarter, our total sales and production went up 38 per cent. We are making the effort to increase production but it is difficult if net sales realisation is not good.
Going forward, our power plant which ran at very low level of less than 30 per cent in the first quarter because of lack of coal availability, evacuation and lack of power purchase agreements will improve. Coal India increased its production by 12 per cent, which will make more coal available in the market. Our advantage is that we are sitting right in the middle of coal. In July, too, things improved. Our older power plant ran at 75 per cent capacity and the new one at 50 per cent and inching up. By the end of the third quarter, 2,000-2,200 Mw capacity will be running. Utilisation will be 65 per cent.
The government is now pushing for auction of iron ore mines. As a company, are you interested in bidding for any?
These will come for auction in October-November. Odisha has already called for bidders. The process has started and has to gather momentum. We would certainly participate, as it is a very key input for the steel industry.
With the commodity cycle in a downturn, do you think the new rules for auctioning are the best way forward?
In Odisha, huge investments have been made by companies like us or Tata Steel or the Bhushans. These were made with an understanding that the iron ore would be made available. We were not told that we would have to go for this whole process of auction. There is a departure in what we were told and what is being said now.
We are the users, not traders. Users should be given an advantage. We have already made an investment of Rs 20,000 crore and it will increase to Rs 30,000 crore to reach the capacity of six mt per annum. It is a moral obligation of the state government to give us the iron ore. We don’t want concessions; we only want our raw material at a fair price from which we can produce steel at competitive prices. Right now, we have royalty at 15 per cent, then we have this District Mineral Foundation (levy), and then the National Mineral Exploration Trust (levy). Ultimately, when you keep putting levies, somebody has to pay the cost. If we keep buying iron ore with such prices, how are we supposed to produce competitive steel?
Most of the mines which would be coming for auction in Odisha are for composite licences. By the law, end-use cannot be reserved for any sector in such licences.
The ministry of mines and steel in Odisha would have to come with a clear blueprint about the auction process because large integrated steel plants are in distress.
What’s the progress on disinvestment of your non-core assets?
We certainly want to divest some of our assets which are non-core. For example, we were in shipping and aviation. We have reduced our investment in both areas. Likewise, there are some others we want to monetise. For example, we mentioned our intention to go public in Oman. We'd like to divest the Botswana coal mine. So, we have drawn the list but it is very important that what we come to the market with has good prospects. When the sentiment is very low, there is no adequate compensation. We have the intent but only when we get a proper valuation are we going to take a decision.
