Home >Companies >News >India won’t see a V-shaped recovery, steel demand will stay weak: Seshagiri Rao, JSW Steel

MUMBAI : JSW Steel, one of India’s largest steel producers, is turning to exports to compensate for the lack of domestic demand for steel, given the extended national lockdown. In an interview with Mint, MVS Seshagiri Rao, Joint MD and Group CFO, JSW Steel, said that while the covid-19 pandemic has pushed back expansion and profitability plans in the first quarter, the company is fairly confident of catching up in the second half of this year. Edited excerpts:

Is JSW coping with the crash in domestic steel demand by turning to exports? Global steel prices have fallen, so how have realisations been affected?

Indian steel demand in May improved by 25-30%. By the time the problems of labour, liquidity and logistics are corrected - which I believe will happen only in the second half of this year - until then shortfalls in domestic recovery will be offset by higher exports. We are selling whatever domestic demand can absorb and the rest is for exports. I would say that our exports have gone up to 50% of production.

Steel prices have come down by 15% (since March) globally while the rupee depreciated 6%. So the net fall in realisations is about 9%. At the same time, our cost of production has come down. There has been a divergent trend in iron ore prices; while they have gone up globally, domestic prices have fallen. So the downside (to margins) is limited.

You’ve given an FY21 steel sales guidance of 15 million tonnes (mt). Given the demand scenario, isn’t that optimistic?

Last year we sold 15.08 mt of the 16.06 mt of crude steel we produced, out of our 18 mt capacity. We had several problems last year too - when prices dropped in the first quarter, we didn’t cut our prices, so volumes fell as a result; after this there was a severe and extended monsoon and then in the fourth quarter, the effects of covid-19 pandemic began. Despite all this, my production could have been higher by at least 1 million tonnes.

This year, we’ve lost April and some of May. We produce about 1.4mt every month; we only did 5.63 lakh tonnes in April. In May, we are operating at 85%. June onwards we will be able to do as per our plans. So I think a 15mt target is within striking distance.

We don’t expect a V-shaped demand recovery in India. We see weak demand till September-October and we’re confident that we can export the surplus.

If you look at the pattern of countries that have more covid-19 infections, they’re mostly steel producing countries, not the importing ones. Our neighbours Nepal, Bhutan. Bangladesh, Myanmar - they import about 8 mt a year. Indonesia, the Philippines, Vietnam, Malaysia import about 7 mt while the Middle Eastern markets import about 13 mt a year. These import markets are not as badly affected. So if you look at this pattern, even you will be confident that we can sell 15mt in FY21.

There are rumours that JSW wants to delay the takeover of Bhushan Power and Steel. Is this true?

This is absolutely not true. We will not pull out of BPSL.

The losses on the overseas subsidiaries have been a drag on your consolidated numbers and now they may not turn profitable for another 18-24 months.

I agree, we were expecting to turn profitable this fiscal but it may not happen till the second half of FY22. The impact, particularly in the US, has been bad. One is covid and the second is the crude oil price shock. The plate and pipe mill (in the US) services the energy industry and given the fall in crude oil prices, any investment happening in this sector is unlikely. We completed phase 1 of capital expenditure ($65 million) there. We wanted to do phase 2 from internal cash generation there but out of the $140 million planned, we’re only doing $45 million, the rest has been put on hold.

What do you make of the Finance Minister’s economic stimulus announcements and the proposed mining reforms?

The announcements are very good, they have to translate into action. Except in government projects where I see some traction in demand, and demand from construction or for transmission lines from Power Grid, we’re not seeing much recovery yet. More government expenditure will lead to recovery pace picking up sooner. Banks also need to transmit lower interest rates to borrowers.

Regarding mining reforms, the shift to the revenue-sharing model (from fixed rupee/tonne pricing) has been a long-standing demand from industry for coal mining and it’s good that this is now happening. I don’t think doing away with the definition of captive mining is as good. We have asked for some mines to be earmarked for captive purposes so that steel and power players get mines. But now, there’s no difference between bidders from mining and value-additive industries.

We have to compete with merchant miners at the auction stage. This would have been okay if every process is market driven, but in India, half of my costs are not market-driven - such as railway freight, interest rates, capital account being not convertible. You can’t have a scenario where some costs are controlled and the others are market-driven. This takes away any advantage we have. We’re not Australia or Brazil where we can export minerals. You have to encourage manufacturing and local value addition.

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