‘India’s steel consumption to grow 7-8% on govt spending’
4 min read 21 May 2023, 10:23 PM ISTDemand growth of 13.3% in India (FY23) was very good. We see demand being driven by government spending on infrastructure and also pickup in private capex with improving capacity utilisation.
PremiumIndia’s steel consumption is bucking the global trend and is estimated to grow 7-8% on rising government spending and signs of a resurgence in private sector investments, said Jayant Acharya, joint managing director and chief executive of JSW Steel. The impact on steel demand since China’s reopening is lower than expected, but India’s demand remain robust, underpinning solid profitability, buoyed by subdued energy costs and lower inflation, that will keep manufacturing costs in check. Edited excerpts from an interview:
What are the primary drivers for strong performance you have seen in Q4?
We have done well on the volume front. It has been volume-driven growth. India saw strong demand. We achieved highest-ever crude steel production and steel sales as well. Our international subsidiaries have performed better. Ohio reduced losses, Italy and Baytown (Texas) reported profits at the operating level but India has been an outlier. Besides, price, environment remained favourable and global steel prices improved. Operating efficiency was achieved with better availability of iron-ore, and lower power costs as blended coking coal prices declined $6 a tonnes over Q3. Our subsidiaries did better and we liquidated inventory of approximately 350,000 tonnes.
How is the demand environment in India? Is there any sign of a demand pick up in China?
Demand growth of 13.3% in India (FY23) was very good. We see demand being driven by government spending on infrastructure and also pickup in private capex with improving capacity utilisation. The expectation was that demand in China will grow as the economy opens up. While services and consumption demand is up, manufacturing and infrastructure is lagging. Chinese government has announced that it would like to contain steel production to CY22 level. That will be positive for global steel industry and positive for prices also. Margins in China are very narrow and steel prices may have hit bottom. India is an outlier and JSW Steel’s focus on adding capacity with attention on improving product mix via downstream capacity expansion should aid performance. We are positive about demand in India, and expect 8% growth in FY24. 7-8% demand growth will translate into additional 10 mt product consumption.
Which sectors witnessed a surge in private capex?
Both government and private investments have seen growth in infrastructure and construction. In the manufacturing side, improvement has been seen in automotive and general industrial makers. Post China+1 strategy, many companies have started sourcing bearings and fasteners from India, which is contributing to private sector spending The appliances sector is also getting investments and sustained packages sector. Warehouse capacity is being added and the renewable energy sector is also witnessing capacity expansion.
Domestic steel and coal prices have seen some volatility. Since the monsoon season is typically weak for the steel sector what near-term impact are you expecting?
Post subdued demand from China there is some weakening of international prices and that has reflected in India, too. Steel prices corrected by about $25 a tonne in May. February and March saw some spike in coking coal price, that has now corrected. While some impact of higher coal prices will be visible in the April-June quarter, the benefits of low raw material prices will start flowing from June. It will reduce our costs in the July-September quarter. So, from a margins point of view, we will be comfortable even as steel prices remain volatile. The important point is that lower energy prices are supportive for manufacturing, and so does lower inflation. Demand in India is likely to remain robust and we are not much concerned about any short-term volatility.
Outlook on exports that have already picked pace during Q4?
Post opening of exports duty we were able to book orders in December and January leading to better exports in Q4. But our focus remains on domestic market and in the last quarter 85% of contributions was from domestic and 15% from exports. Exports generally remain in the 15-20% range and depending on opportunities they can go up to 20% or more. At the same time if the situation warrants, we reduce them to 15% or lower. FY24 will also see exports in the 15-20% range with a focus on domestic markets and the balance of exports accordingly.
Capex for FY24 and capacity expansions to be completed during FY24?
We will be expanding capacities to 37 million tonne by the end of FY24. A little bit may spillover to FY25 but our VVijayanagar brownfield expansion project and Jharsuguda project is to be completed by end of FY24 and will add capacities of about 6.5 mt. Bhushan Power & Steel Ltd (BPSL) 2.75 to 3.5 mtpa will also play out as will other downstream expansions. Our Capex requirements of ₹18800 crore for FY24 will be funded through internal accruals, while we will refinance our ₹14000 crore debt falling due this year.
What is your vision for JSW Steel as you took over the Joint MD & CEO position?
JSW Steel aims to achieve a capacity of 50 million tonnes by the end of the decade, while remaining focused on the Indian market. This will make JSW Steel one of the largest steel producers globally. JSW Steel has a diverse portfolio of value-added products and will continue to innovate and grow these offerings. The company’s growth strategy focuses on responsible expansion within India, emphasizing sustainability and decarbonisation. Our aim will be to continue to deliver superior returns to shareholders, with prudent financial management.
