'A recovery has started in the steel industry'

Q&A: Seshagiri Rao,Joint MD and Group CFO, JSW Steel

The steel industry, especially the flat products segment, is seeing green shoots after a 60 per cent drop from peak levels last year (till December). In an interview with Ishita Ayan Dutt, JSW Steel’s Joint Managing Director and Group Chief Financial Officer Seshagiri Rao discusses the current demand scenario and the status of the company’s projects. Excerpts:

Has the steel market bottomed out?
The market has risen from the bottom. Demand has been improving from April onwards, not only in India but internationally. August saw the highest ever production across the world. We saw the bottom in October-December. Now recovery has started.

But long products or construction steel appears to be moving in a different line...
There is a divergent trend in India. The monsoon season made it sluggish, but it will recover after the festive season. In the international market, wire rod prices are increasing, led by the revival in project demand. In India, flat products are witnessing a very good demand.

What is the difference in international and domestic hot-rolled coil (HRC) prices in the flat products group?
International prices went up to $600 a tonne but domestic prices could not keep pace. Now international prices have come down a little to $560-$570 a tonne. Indian prices are at the same level or slightly lower.

Are we likely to see the peak prices of 2008?
I don't think so, unless raw material prices go up. That may not be sustainable as coking coal was at $300 a tonne, iron ore $200, steel $1,200 a tonne. I don't see that happening.

If prices are at more or less the same level internationally, then is there a need for the safeguard duty the industry has been demanding?
Consumption has increased by 6 per cent but production has increased by 4 per cent. Imports continue to grow. We are continuously making representations to the government — it has to take a call on that.

In the light of the recovery in demand, will you restart some of the projects that you had put on hold?
In September, we put the brownfield expansion on hold, which we have restarted. We are also restarting our iron ore project in Chile. We will review our greenfield projects next financial year.

What is the investment in the brownfield project?
The brownfield project of expansion to 10 million tonnes at Vijaynagar would cost around Rs 7,000 crore. We have already achieved financial closure for the project.

Global meltdown apart, are you apprehensive about the Bengal project, as the site is close to Lalgarh — the centre of Maoist insurgency?
We are committed to the Bengal project. Timing is the issue. Whether we start in the middle of next year or in the latter part of next year — we have to study. We have to commission the brownfield by March 2011.

You were looking at a qualified institutional placement (QIP) of $1 billion. Is that on the back-burner?
That was an enabling resolution. We have not decided the timing. It is not for financing our capex programme, but reducing leverage.

What is the debt position of the company?
As of March 31, 2009, we had long-term debts of Rs 14,500 crore and our networth was Rs 8,000 crore. The ratio of debt to networth was 2.05:1 while long-term debt to networth was 1.79:1. We have committed that we will not exceed the ratios and we desire a ratio of 1.50:1. From March to September, it has come down to 1.8:1 from 2.05:1 because the debt has not increased.

What is the capacity utilisation at your US mills?
Current capacity utilisation is at 20 per cent, which has increased from June levels. Improvement is there, but it's gradual.

What is the status of restructuring of companies across the O P Jindal group?
Ernst & Young has been working on it for a long time and it will take some time before the structure is finalised. The informal agreement between the brothers will get formalised. There are many investment companies across the group, which will be rationalised.