Good cycle for commodities will continue: JSW Steel's Seshagiri Rao

Steel prices cannot remain at the same level when coking coal prices have increased, says the senior executive

JSW Steel, India’s largest steelmaker, reported profit after tax of Rs 4,516 crore in Q3FY22 on a consolidated basis, an increase of 69 per cent year-on-year. Quarter-on-quarter, it was lower by 37 per cent primarily on account of elevated coking coal and power cost. Steel prices, too, saw some softening. Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel, tells Ishita Ayan Dutt in an interview the acceleration of demand in the second half of the year has not been as anticipated but demand will pick up in Q4.

Edited excerpts from the interview.

Steel demand in India contracted in October and November on a year-on-year basis. Has it improved thereafter?

If we analyse Q3FY22 versus Q2FY22, steel consumption went up by 9 per cent. In December, consumption was 9.3 million tonnes (mt), which is the highest this financial year. If we annualize that, it is 111 mt. So, it would not be right to say that steel demand is falling in India.

But compared to last year, demand is lower. Last year, after the first Covid wave, demand started going up. Acceleration of steel demand was much better in the second half of last year compared to this year. The kind of acceleration we expected in the second half of this year, that has not happened; it has been moderate. There are two reasons – extended monsoons and floods in some states and festival-related holidays. But December has seen recovery. In my view, demand will pick up in Q4. 

December also saw a steep correction in prices. Have prices bottomed out and is an increase in prices likely next month?

The price drop that we have seen partly in November and December was majorly driven by the destocking in retail. Global prices corrected and everybody anticipated that steel prices in India will also correct. But if you compare the fall in steel prices globally, Indian steel prices have not fallen that much because of the discounts that were there compared to the landed cost of imports versus domestic prices. But in the last few days, we are seeing an uptick in global steel prices.

It is not possible for steel prices to remain at the same level when coking coal prices have increased to $445 a tonne and iron ore is at $137 a tonne.

Global prices have softened from their highs. In terms of fundamentals, has anything changed?

A good cycle for commodities has started and it will continue. Energy transition and infrastructure spend are two major drivers that caused the increase in demand. Over and above that, digitization and automation related capex is also increasing. The underlying themes have not changed.

You have contested Indian Bureau of Mines’ (IBM’s) methodology for average selling price in Odisha High Court. The impact in Q3 on your P&L is Rs 1056 crore. What kind of an impact is expected in Q4?

It will not be over and above what you have seen in Q3 assuming IBM will continue the same pricing methodology. It is the same. If IBM revises the price downwards or if we get a favourable judgment from the high court, in that event, there will be benefit.

Land acquisition for your greenfield plant in Odisha is seeing a lot of resistance. So would you focus on brownfield expansion and acquisitions?

As far as Odisha project is concerned, we are now investing in the mines, beneficiation plant and slurry pipelines. We have applied for all the clearances to start the project. The land, once it comes into our possession, we will take steps to implement the project in a modular way.

You have bid for Neelachal Ispat Nigam Ltd. Some downstream assets also appear to be on the block, would you look at them?

We are definitely interested in downstream assets. 

Transition to green steel will involve investment. What kind of support are looking at from the government? 

There is a huge amount of government hand-holding that is being done – whether it’s the US, Europe, Canada or Japan. It is also essential for a developing economy like India where a lot of support is required for the transition. Help is being sought by the industry with regard to access to capital. 

Also, proactive companies like us who are putting in a lot of effort to make less carbon intensive steel. So, we should have priority in public procurement and I don’t just mean JSW. Any company doing it should have priority or somebody has to pay a premium. The consumer won’t pay unless there is differentiation. That will take some time.

What’s on your wish list for the budget?

Hand-holding the industry for energy transition is the first area. Then in coking coal, India has become the largest importer today. If you see the National Steel Policy of 2017, the coking coal requirement is going up to 166 mt (for 300 mt of steelmaking capacity) from the current level of 56 mt import. So our requirement of coking coal is tripling. Total coking coal trade in the world is 300 mt. A mission mode thrust is required for India to become self-sufficient in coking coal.