Hopeful of V-shaped recovery for steel sector: CEO Vedanta Electrosteel

A sharp fall in steel demand and production has put a question mark on the revival of sick steel units acquired through the insolvency and bankruptcy code (IBC) route. But PANKAJ MALHAN, chief executive officer of Vedanta Electrosteel Steels, tells Kunal Bose that stimulus packages and progressive demand revival from steel-user industries have started breathing life into ailing steelmakers. Edited excerpts:

Will economic dislocation caused by Covid-19 have major bearing on the revival of bankrupt steel companies acquired by strong groups through the IBC route?

Covid-19 has not spared any sector. Expectedly, steel enterprises like ours acquired from the sick bay have suffered major production setback since the outbreak of Covid-19. We remain hopeful the recently announced stimulus packages of the government will create ideal conditions for revival of bankrupt steel companies like ours.

For example, the recent reforms of iron ore and coking coal sectors will improve competitiveness of Indian steel. Similarly, attempts by government agencies to impart new levels of efficiency in logistics, the cost of which compares unfavourably with many other economies, will benefit steelmakers.  

I will say the moratoria announced by the finance minister will go a long way in the revival of sick steel units acquired via IBC.

As we go along, the demand for steel from major user-sectors will pick up and so will production.

How will the steel industry fare in the first half of 2020-21?

I fear a 17-20 per cent fall in production and demand and a price correction of 18-20 per cent in the first half. At the same time, we are seeing a similar correction in raw material prices. Steelmakers with leaner fixed costs are better placed to negotiate the current exceptional situation.

Encouragingly, we are already seeing steel demand improvement from the infrastructure sector, which has the single-largest share in total metal consumption. This could not be otherwise, since infrastructure is one of the five pillars of prime minister's self-reliant India mission. Mercifully, the weatherman has forecast a healthy monsoon in 2020 and that should aid steel demand revival.

What is the road map for steel demand revival?

A stimulus package equal to 10 per cent of our gross domestic product is designed to inject the much-needed liquidity into the system. This, along with positive fallouts of an expected good monsoon, should propel demand for steel - not only from rural and semi-urban areas, but also from our principal steel-using sectors, including construction, railways, and automobile. As growing domestic demand is met, most steelmakers have adopted an export-oriented mindset to not to allow their inventories of finished steel to bloat.

What are the priorities for steelmakers in the new situation?

The industry will have to navigate to a new normal where primary focus will be on health and safety of workers. We, in the industry, will have to uphold a system where leadership, culture, and skills are aligned to the demands of new business operations and where work is driven by technology. We have to drive down production costs by making use of low grades of iron ore, which are available in abundance in the country. The industry research and development work needs to be beefed up. All this will improve global competitiveness of our steel. We have to be transparent in our dealings with customers. We have to go for digital innovations to enrich customer experience.

How difficult will it be to achieve the 300-million tonne (mt) steel capacity target by 2030-31 due to Covid-19-related setback?

The 300-mt capacity ambition encapsulated in the national steel policy is sought to be achieved through greenfield and brownfield expansions and revival of sick steel units.

Unfazed by recent adverse developments, the industry fraternity remains committed to the ambition. I'm hopeful of a V-shaped recovery for the steel industry. A combination of good governance and focused pursuit of technological innovations will help the world's second-largest steelmaker achieve the 300-mt capacity target within a stipulated time frame.