JSW Steel saw demand for value-added products and special steel rise in the October-December quarter
It made a dramatic recovery around its steel production and financial performance by the December quarter after covid-19 disrupted operations through most of the first quarter
JSW Steel saw demand for value-added products and special steel rise in the October-December quarter as industrial component manufacturers seek to replace their dependence on Chinese imports will locally manufactured alternatives. Demand for specialised product grades from auto component manufacturers, bearings and forging industry-led JSW to approve 18 new product and grade categories in the third quarter, a senior company official told Mint.
“A lot of companies are now requesting us for special steel because they want Chinese imports are now discouraged and companies want to replace this with domestic steel," Seshagiri Rao, joint managing director and group chief executive officer, JSW Steel, told Mint in an interview post the third quarter earnings announcement. “Many of them have approached us with detailed specifications for new products. For JSW, this segment (of demand) from commercial vehicles and industrials is growing."
The new grades approved include a special forging alloy steel grade and ultra-low carbon and bake-hardened steel for auto OEMs (original equipment manufacturers), electrical steel with superior core loss grades for industrial motors and transformers, and new bearing grades and corrosion-resistant high strength hot-rolled steel for general engineering use.
JSW Steel, like most large primary steel producers in the country, was table to dramatically turn around its steel production and financial performance by the December quarter after covid-19 disrupted operations through most of the first quarter. The company made a turnaround to 91% capacity utilisation in the third quarter and its highest ever reported operating profits, aided by recovery in end-user businesses and high global steel prices limiting imports.
Net profit stood at ₹2669 crore, rising 93% year-on-year from the ₹187 crore while operating EBITDA (earnings before interest, tax, depreciation and amortisation) stood at record levels of ₹5,946 crore.
JSW used the quarter to increase its sales of special and branded steels, where margins can be as much as 30% higher than hot-rolled coil. Its automotive steel sales increased 57% year-on-year in the third quarter against the auto industry’s own manufacturing which increased 16% over the same period. Sales of value added and special products moved up 12% and accounted for 57% of overall sales, mainly driven by robust automotive sales and increased offtake from industrial and engineering, solar and the consumer durables segment. JSW also reported its highest ever quarterly retail volume of 1.18 million tonnes (mt), 14% year-on-year. With such robust local demand, the company’s exports shrank from 24% in Q3FY20 to 12% in Q3FY21.
Domestic steel prices touched a record high earlier this month, pushed up by higher raw material costs for producers for iron ore and coking coal as well as increased pricing power given the rapid rise in global prices for the metal. Prices of hot rolled coil (HRC)—a key indicator of the price trend in flat steel—have risen to their highest-ever of ₹58,000/tonne on average as major steel players recalibrated their dealer prices in the second week of January.
Rao expects steel prices to remain elevated even though supply side constraints in the domestic steel market have eased as primary producers have increased crude steel production in the last few months. “The actual shortfall between production in April-December between 2019 and 2020 was only 10 mt. Last year, India’s production over this period was about 82 mt and it was a little above 72 mt this year. On the other hand, consumption has picked up 19% year-on-year from auto, appliances, packaging, agriculture and retail. For producers, raw material iron ore shortage is still a problem in Karnataka and concern regarding iron ore exports remain. Global iron ore prices are at $170 a tonne and coking coal prices also jumped suddenly in January rom $100 to $135 a tonne. So, given high raw material prices and strong demand, I think steel prices will be rangebound at their current levels for a while."