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We are cautious on revival of steel demand this fiscal: JSW Joint MD

 

Date | May 06, 2019:

 

JSW Steel has been has chalked out an expansion plan. However, the slowdown in demand has raised questions in this regard. In an interview with BusinessLine, Seshagiri Rao, Joint Managing Director (MD), JSW Steel said he is confident that the expansion plans are on track to meet future demand projection. Excerpt:

 

How did the last fiscal pan out for you?

 

The last fiscal was challenging for steel companies, particularly during the second half. The global slowdown and intensive protectionism led to trade tension and liquidity concern. These three factors had its impact on the global economy. In India, there was a liquidity crisis, non-performing assets (NPA) issue and banking problems that started hitting domestic economy from last October. Overall, we had seen some slowdown in demand. Despite this, we were close to achieving our production target. We recorded a production of 16.5 metric tonnes (mt) against target of 16.69 mt. On sales we were lower.

 

How do you see the demand of steel this fiscal?

 

We are cautious on the revival of steel demand this fiscal due to liquidity issue that continue to persist. Lending has slowed down due to the crisis in non-banking financial companies (NBFC) and banking sectors. Credit growth is seen at 14 per cent but for the industry liquidity is still an issue. The only consolation, now, is the increasing expenditure by the government in infrastructure projects such as roads, bridges, tunnels, ports, water and gas pipeline. Going by the manifesto of political parties, we expect this momentum of government spending to be continued by the new government which comes to power after election. Steel demand should continue growing at 7-7.5 per cent this fiscal.

 

How do you see coking coal and iron ore prices this fiscal?

 

Global iron ore prices have shot up in the last few weeks due to the natural calamity. It went up from $65 a tonne to $85 a tonne. The market predicts that the short-supply of iron ore is not going to be as grave as expected. Based on this, prices have started falling as the miners do not see a huge short-fall in production. Hence, the global steel demand this year may fall to 1.8 per cent from 3.9 per cent logged in last year. After the lower steel production estimate, the global gross domestic product (GDP) was revised and this will have further impact the steel demand. Though coking coal and iron ore prices are currently high, there is no structural shift to keep them at elevated levels. China’s dependence on Australia for coking coal is coming down as the supply from Mongolia has increased. Iron ore prices should come down in the second half of this year.

 

Have you set a target for iron ore imports this fiscal?

 

Our iron ore imports have come down drastically. We are not importing as much as we use to do in the past. The domestic availability, particularly in Odisha and Chhattisgarh, has improved even though it was deficient in Karnataka. If the current situation continues, there will no need for us to import iron ore.

 

Has the mines that have been auctioned have started production?

 

No. One of the major reason for them not being operationalised is due to the hoarding of mines. Currently, companies come and bid for the mine only to ensure that the others do not get it. With this, they pay a hefty premium. The intent is not to operationalise the mine. There are no hefty penalty on companies that do not honour commitments. The penalty is merely a marginal initial guarantee given by the bidder. There is no blacklisting or banning of these companies from bidding. The premiums are not feasible because the number of mines that are auctioned is less than the demand. If the government wants to enhance the manufacturing sector’s contribution to the GDP, from 16 per cent to 25 per cent, then auctioning of mines at competitive price is important. This will also ensure that there are no premiums at 130-175 per cent which makes the project unviable.

 

How do you see Karnataka miners claim that steel companies are not buying them?

 

This is misinformation. The iron ore stocks in Karnataka have been there since 2008-09. They are of a low grade, with 40-45 per cent manganese and needs beneficiation. It cannot be exported either. If they have to sell it in the domestic market, they have to price it in such a way that it is viable for the user industry. The low grade iron ore in Karnataka has high manganese, silica and moisture but they are priced the highest. Steel companies are struggling due to high iron ore costs , no access to coking coal, and high logistics costs. Iron ore in Karnataka should be sold at Rs 1600-2000 per tonne.

 

 

(Source: https://www.thehindubusinessline.com/)