We feel export duty is a temporary measure to contain inflation: JSW's Rao

Companies are creating capacities with two major objectives - to meet India's requirements and also to meet global demand, says Rao

The 15 per cent export levy was a bolt from the blue for the steel industry and JSW Steel will have about 4 million tonnes (mt) additional volumes to sell in FY23 as it ramps up Dolvi and Bhushan Power & Steel. In an interview, Seshagiri Rao, joint managing director, and group chief financial officer, JSW Steel, tells Ishita Ayan Dutt that the export duty is a temporary measure to contain inflation and he does not expect it to impact medium or long term plans. Edited excerpts:

What was JSW Steel’s EBITDA/tonne in FY22 and where do you see it in FY23 in the wake of the export duty?

In FY22, the total EBITDA/tonne on a consolidated basis was Rs 21,454. But the average EBITDA/tonne that JSW has made over steel cycles 2016-2021 is Rs 8,500-9,000. In the worst-case scenario, we see EBITDA/tonne at Rs 13,000. Last quarter, it was at Rs 15,336/tonne.

As far as the duty is concerned, I would like to draw attention to 2008 when the export duty of 5-15 per cent was imposed on various steel products. It was there only for a month on flat products; on long products it was there for five months. This is not a measure that will continue for long and bother us in the medium and long term. I see it as a short-term measure to contain inflation.

Have you got any comfort from the government that this is a temporary measure?

No. But the government has said that this measure has been taken to contain inflation. And inflation will not be there forever. Therefore, it is temporary and has happened in the past. If you see the global experience, Russia imposed a duty on the export of steel for five months – August to December 2021.

Is the duty applicable to existing export orders?

As per the current notification, any exports taking place subsequent to May 22, attract export duty. In 2008, there was an exemption for orders backed by letters of credit. There are representations on this that have already gone.

Exports were 28 per cent of JSW Steel’s total sales in FY22, do you see it coming down?

In Q4FY22, the share of exports in total sales was 21 per cent even though the average for the year was 28 per cent. We have given guidance of 4 mt incremental sales this year which we have to sell in the market. So, we are working on strategies to do incremental sales with the duty on exports. One is import substitution.

Semi-finished steel (semis) has been kept out of the ambit of export duty. Would you export more semis?

We don’t export a big quantity of semis, we export value-added steel such as galvanised and colour-coated. What is important is that domestic demand in that segment is only 45-50 per cent of the total galvanizing and colour coated capacity in India. 

The capacities were created to meet global demand. There should be some way of distinguishing between value-added and commodity steel. We should not lose the export opportunity.

Export sales were built in your capacity expansion plans. Will it impact your expansion to 45 mt capacity?

We have been planning to increase capacity to 36 mt by 2024-2025 in India for which steps have already been taken and the capital projects have kicked off including Bhushan Power & Steel and JSW Ispat Special Products. The capex guidance for this year is Rs 20,000 crore.

As of date, our capacity is 27 mt which is going up to 36 mt. Beyond that, the expansion is on the drawing board. We feel the export duty is a temporary measure. It is a matter of time before this goes. After that, we will plan our next phase of growth.

Is there any risk to future expansion?

In 2008, when the export duty was imposed, capacity in India was 59 mt and production, 54 mt. We were not export-dependent, so the duty impact was limited.

But that is not the case in 2022. We have created 150 mt capacity and are operating at 81 per cent; consumption is at 106 mt and we have exported 18 mt and imported 5 mt. If the exports do not happen and consumption does not pick up in India, what will we do with the capacity?

Companies are creating capacities with two major objectives – to meet India’s requirements and also to meet global demand. So, 18 mt of exports will not become zero because there are long-term customers. It may go down, but that is not good in the current environment where there is a huge opportunity for India. We should increase our exports. The export duty should be withdrawn as early as possible.

To what extent have steel prices corrected after the export levy?

Globally, we have seen a $100 correction. I wouldn’t correlate export duty with a domestic price correction. Domestic prices are determined by the landed cost of imports. Landed cost of imports have become cheaper and that’s why Indian prices have corrected.

In the trade segment, prices have corrected. Will there be a revision in mill prices in June?

There will be a correction from June 1. We will take into account the landed cost of imports (Rs 63,000-65,000 per tonne for hot-rolled coil).