“Indian steel industry can fill the void left by China”
MUMBAI : JSW Steel Ltd, the flagship business of the diversified JSW group, posted its highest quarterly profit of ??7,179 crores in the second quarter, up 350% from the previous year. However, the impact of rising input costs was visible in its operating performance. Seshagiri Rao, deputy general manager and group chief financial officer, JSW Steel, explained his company’s plans to counter rising input costs. Edited excerpts from an interview:
The prices of energy raw materials have increased. How is your business approaching this?
This is an exceptional situation where coking coal prices have increased by 300%, from $ 120 per tonne to $ 400 per tonne in a short period of time; each day, prices increase by $ 10 to $ 20 per tonne, which represents a very high price volatility. Thus, we see what is the mechanism prevalent globally for dealing with such volatility. In the United States, for example, steel prices are linked to scrap prices. Scrap metal prices go up and steel prices go up and vice versa. Recently, we observed that in the European market, when energy prices rise, one of the large steel companies introduced an energy surcharge of € 50 per tonne. Although this concept does not exist in India, we are seriously considering introducing an energy surcharge linked to the base price of coking coal. If the price of coking coal increases, the surcharge will increase; if it goes down, it will decrease. Of course, this is subject to acceptance by customers. We need to consult with our original equipment manufacturer customers and take their advice before implementing it.
Have you taken other measures to reduce costs?
Yes. The first is that we have completed the expansion of our Dolvi factory. This will increase the volumes. When the expansion is fully operational, the cost will be much lower. Since the existing operations are all gas-based while the new installation is not gas-based, the cost will be 15-20% lower, so the lower cost advantage will also be present. . In addition, our overseas operations have started to function well. He contributed ??485 crore in the second quarter to our profits versus ??280 crore in the first quarter. This will increase further due to increased volume capacity utilization in the overseas market.
Finally, the fall in the price of iron ore which partially occurred in September and October will take place. Even if it didn’t happen to the extent that it happened on a global scale, the benefit will be there. These are some of the neutralizing factors that will reduce the cost to some extent.
Are Chinese policies impacting the steel sector?
There are completely different dynamics playing out in China and outside China on the basis of which Chinese policies calibrate themselves. One is common prosperity and the second is decarbonization. Based on these two elements, they put in place policies to limit steel production, limit exports and enter the high-end value-added segment. The impact is that new real estate investments have started to decline and this has had an impact on the overall demand for steel in China. Over the past year, demand for steel has fallen 23% in China. However, in the rest of the world, demand is strong mainly due to the recovery of the manufacturing industry, government investments, energy transition, lower interest rates and high liquidity, ensuring and influencing the revival of steel.
According to the World Steel Association, the demand for steel will decrease by 1% in China, resulting in a decrease in demand of 10 million tons (mt) in China, while the rest of the world will see the demand steel increase by 11.5%, resulting in 90 mt. This means that there is an additional demand of 80 mt, which will translate into 4.5 times the growth in demand for steel. Therefore, when it comes to the dynamics of steel demand, China is not an influencing factor.
So how do you see the steel supply and demand situation?
Indian steel consumption in the first six months of this financial year was 49 t compared to 36.5 t the previous year. This means that we consumed almost 13 million tonnes of additional steel in the first six months of the year. Although the second quarter was moderate, we expect that after the monsoon, the construction and infrastructure sector will pick up. We are already seeing traction on the residential sector and on the public spending side.
In the second half of the year, we can see that there will be an acceleration in demand for steel in India. There is a huge opportunity to fill the space freed up by China in the export market, especially in Asia. And India can fill this gap.
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