Even as the steel industry faces a slowdown in demand, it is expected to remain robust this financial year with increased spending on infrastructure, auto and consumer durables, says Seshagiri Rao, joint managing director and group CFO of JSW Steel. In an interview with Nayanima Basu, he said the company is planning to set up two units of 10 million tonnes per annum (mtpa) each in West Bengal and Jharkhand. Edited excerpts:
What are your expectations from the National Steel Policy? Do you think it would mitigate the problems the industry is facing now?
The policy announced in 2005 envisaged the production capacity of 110 million tonnes (mt) by 2020 at a compound annual growth rate of 7.3 per cent, while the consumption growth was expected to be 6.9 per cent. Its objective was to achieve global competitiveness for our steel sector. But the new projects announced then are yet to take off due to delays in land acquisition, raw material linkages, and environmental clearances, basically relating to regulatory aspects.
There is a dire need to fine-tune our national steel policy considering the current challenges the industry is facing in creating new capacities and accelerating steel consumption. The recent announcement by the government to introduce new steel policy by December 2011, should take into account the regulatory hurdles and infrastructure bottlenecks.
Do you see steel prices going up given that the prices of raw material would only harden this financial year?
The prices for key inputs such as coking coal and iron ore went up beyond the pre-crisis level. The price setting for these inputs has also been changed from yearly to quarterly or monthly. Since a significant portion of sea-borne trade for coal and iron ore is from Australia, a slight disruption in supply causes unusual spikes in prices.
Short supply of raw material, will however, push the prices of steel. The range of prices for steel products internationally is extremely wide and varies from region to region due to freight and trade restrictions. For instance, prices in Asia for base grade hot-rolled products currently are $720 per tonne. While in Europe they are higher by $100 per tonne and in North America they are higher.
Since you said that steel prices would remain high this year, when do you plan to raise prices and how much?
Steel is a tradable commodity and has very nominal import duty in India. Hence, steel prices in the domestic market have to be aligned with international prices. We are keeping a tab on the international price trends and will accordingly fix the prices for products.
Do you plan to pass it on to the consumers, and where do you see your margins operating going?
JSW has taken several steps to improve operational efficiency, to preserve margin in spite of disproportionate increase in raw material costs relative to increase in the steel product prices. We are also focusing on enhancing our backward integration in addition to improving product mix and growing volumes.
Do you see any moderation in demand?
Structurally, the demand for steel in India is expected to be robust. The trend remains positive, barring the temporary slowdown currently being experienced due to high interest rate and inflation. Despite a temporary slowdown in investment cycle, it is expected to pick up in the next few quarters that will drive the demand for steel products.
We have seen a demand growth of 10 per cent in the last financial year and expect growth to accelerate further due to infrastructure spending and consumption from auto, consumer durables and piping sectors.
What are your plans for acquiring assets abroad?
We made acquisition of iron ore mining concessions in Chile, coal mining concessions in the USA and Mozambique. We continue our strategy of enhancing our backward integration and look for appropriate opportunities.
How much of capacity expansion are you expecting this year?
We are expanding our capacities from 7.8 mtpa to 11 mtpa. This expansion will get commissioned this month. We have already announced to expand this capacity by another 2 mtpa to 13 mtpa by June 2013. We have further plans of implementing two more greenfield projects of 10 mtpa each in phases in West Bengal and Jharkhand. This capacity is in addition to the 3.3 mtpa capacity of recently acquired Ispat Industries Ltd, which has been renamed to JSW Ispat Steel Ltd.
What are your future plans for Ispat?
We have three-pronged strategy in JSW Ispat Steel Ltd. We are working on to bring in synergies identified at the time of acquisition, some of which have already materialised as reflected in improved performance following our acquisition. We are also looking at setting up facilities to integrate operations to reduce cost and increase the capacity to 5 mtpa.
What is the status of your overseas operations?
We already commenced iron ore mining operations in Chile and begin exporting from April 2012. We are planning to produce and sell 1 million tonne of iron ore this financial year. Similarly, we expect to ship our first consignment of coal from the US coal mines this quarter. The plate and pipe mill operations are gradually turning around and we are ramping up capacity utilisation this year.
How is your export market doing?
We have increased our retail reach in Indian market through JSW Shoppe where sales is 23 per cent of the domestic sales. The proportion of exports significantly came down to 14 per cent of the total sales last year. While we continue to have presence in over 100 countries in the export market, our focus remains in the domestic market.
