 "Seshagiri Rao MVS")
Seshagiri Rao M V S, joint managing director & group chief financial officer, JSW Steel, tells Megha Manchanda that the minimum import price for steel products is compliant with rules of the World Trade Organization, and why the country cannot afford to allow iron ore exports. Edited excerpts:
Is the minimum import price (MIP) sustainable in the long term?
A lot has been written on India flouting World Trade Organization (WTO) norms after imposition of MIP, which is a fear of the unknown. There are exceptions to WTO norms and those have been described in detail. If you summarise the exceptions provided, they convey that if imports are impacting the economic situation of the country then restrictions can be imposed in public interest. If imports are causing serious injury to domestic industry, barriers can be imposed. So to say MIP is not WTO compliant is not correct. What is wrong in India taking remedial action against imports from surplus countries such as China, Korea, Japan and Russia?
There is surplus iron ore in the country. Some states have sought removal of export duty to export the ore. Do you think that domestic demand can be created or do we have to export?
The major advantage that the Indian steel industry has is domestic iron ore, so it should be conserved for the industry here. To develop infrastructure, more steel is required and, hence, more iron ore. Therefore, to think that there is no domestic demand and that we should extract everything and export is not a good policy. We have to conserve this resource as it cannot be replenished. Karnataka’s steel industry requires 35-40 million tonnes (mt) of iron ore per annum and this is growing, whereas iron ore production in the state at present is below 35 mt. If the total consumption is more than supply, the question of export does not arise. As far as Odisha is concerned, many mines are going to come up for re-auction in 2020, so some mining companies are in a hurry to extract iron ore as soon as possible. There will be a spurt in supply in the short term, but we have to look at the long-term interest of the country. The ministry of steel has a vision that India should become a 300 mt steel producing country, that is the demand India is expected to have in the next decade, therefore we cannot afford to exhaust this competitive advantage.
Is bringing down production of iron ore a solution?
We have a domestic sponge iron industry, the largest in the world. It is operating at about 35 per cent of its capacity. The major problem that these companies face is iron ore price. Pricing is not moving in line with the international market. Globally, prices have come down, but domestically the prices have not been adjusted.
As part of the JSW’s raw material security plan, will it participate in the upcoming iron ore auctions in Karnataka?
We hope some mines will get auctioned quickly, we will be able to get some in the auctions. We will have a chance to get some backward integration.
How do you see Ebitda (earnings before interest, taxation, depreciation and amortization) coming down in upcoming quarters?
As an industry we have been talking about unfair trade, we are not against competition. Imports are coming at very low prices and that has been proved by levy of anti-dumping duty by several countries. After the introduction of MIP (February 2016), steel prices in the international market have gone up. When domestic prices started rising, everybody started attributing the rise to MIP, but completely ignored the international market.
Domestic prices started correcting after global prices did in May. The correction is mainly because of global oversupply and the slump in domestic demand. Based on this, we gave a guidance that the margins that we showed in the quarter ended June might not be sustainable going forward. Also, raw material cost is going up, which will have an impact.
The steel minister has said research and development (R&D) in the sector needs improvement. What is your take?
Yes, we need to increase our R&D spending as a country in relation to what is happening in the developed world. As the economy expands, more investment needs to be made in R&D.
What is JSW Steel’s focus on R&D?
JSW Steel has taken a lot of initiatives in the past few years. We have set up a state-of-the-art R&D centre at our Vijaynagar (Karnataka) facility. We have around 30 people working in the R&D department. We have also tied up with several academies to take up research in metallurgy. Our R&D centre is looking at using low-grade iron ore for producing steel at a competitive cost. They are also conducting research on value-added products. Our board is closely watching this. So, there is huge amount of thrust being given to R&D.
What is the amount set aside for R&D?
We have spent about Rs 40-50 crore for setting up R&D centres in the country. Now, we are spending around Rs 15-20 crore per annum on R&D. It is not adequate and we need to increase this.
How is the company trying to bring down logistics cost?
Logistics is a very crucial cost in steel making. For every tonne of steel produced, raw material of about five tonnes needs to be moved. Therefore, efficient logistics cost brings us a sustainable advantage. We have planned to develop an independent logistics wing for handling raw material and finished goods, which is why as a group we have invested in ports and built roads for better transportation of goods. Coastal infrastructure also plays an important role in transportation of goods. We have a very big coast line, but we are not using it fully because of a lack of infrastructure for loading and unloading and lack of connectivity to the hinterland.
How do you think the goods and services tax is going to help?
It is a great reform that will transform business models. It will give be hugely beneficial to the industry, once implemented. But, what is worrying is the rate for iron ore. We hope it is not too high, else it will become unviable for some companies. If it is a reasonable rate and the cascading impact is served by subsuming all taxes, it will give great relief to the industry.
