JSW Steel's US operations poised for a turnaround amid the pandemic

With modernisation of Baytown plate mill, the utilisations will more than double leading to conversion costs reducing by 33-40 per cent, says company

With its US operations gearing up for over 80 per cent capacity utilisation levels from the June quarter of FY22, Sajjan Jindal-led JSW USA is poised for a complete turnaround after almost a decade.

“With modernisation of Baytown plate mill, the utilisations will more than double leading to conversion costs reducing by 33-40 per cent. This will ensure sustained positive earnings along with (positive) net income, insulating the business from the cyclical nature of steel,” Parth Jindal, director of JSW USA, told Business Standard in an interview today.

All along, the capacity utilisation of the Baytown unit was hovering around 30-40 per cent. The unit comprises 1.2 million tonne plate mill and a 0.5 million tonne tone pipe mill.

The Baytown unit in Texas will be sourcing its raw material in the form of crude steel slabs from its own Mingo Junction plant in Ohio, which has a capacity of 1.5 million tonne.

The Sajjan Jindal group seems to be doing everything this time to close the loose ends of the decade old business, which it had acquired for almost $1billion from elder brother Prithviraj Jindal in 2007.

JSW Steel USA Ohio Inc, an arm of JSW Steel Ltd, has also signed a five-year tolling agreement with Allegheny Technologies Inc (ATI) to divert surplus carbon steel slabs of its Mingo Junction unit to deliver high quality hot-rolled coil (HRC) products.

“This agreement is expected to take Mingo Junction product realization up by 6-7 percent on sales quantity compared to previous levels. It is a win-win for both JSW as well as ATI since we both will be able to up our utilization levels,” informed Parth.

Witnessing the dull business scenario with prices and demand for steel tanking in 2020 due to Covid-19, Jindal shut its Mingo Junction plant in July last year and the Baytown unit in September for modernisation purpose. The company also laid-off all its 550 employees at the two plants last year thus biting bullet.

“It was the right decision though a tough one. The idea to modernize was to up technology at the unit and reduce manpower level,” explained Jindal.

Early 2021, the company has started to hire at both its units as it started operations at Mingo Junction in March and at Baytown in February. Hiring at the units is a combination of old as well as fresh recruits with total count around 530 at present and aims to stabilize manpower at 530-600 employees.

“Post modernization (of the two units), the productivity of the employees is gone up. Earlier the units produced 350,000-400,000 per annum and now we almost same workforce we will be producing 1.5 million tonne per annum,” informed Jindal.

Despite the ongoing COVID-19 pandemic scenario, Jindal is hopeful of  sustainable demand for steel as the US goes for vaccination in a big way amid  Biden government ratifying the more than $2 trillion infrastructure bill.

“People in the US are looking to move out of the cities into suburbs and this has led to strong housing demand in the country. This will augur well for the steel industry in North America and the demand is expected to outstrip supply in coming years,” explained Jindal.

While at one end JSW aims to strengthen its presence in the US, the ongoing pandemic is giving supply chain problems, which have started to get better only since February 2021.

“We are seeing improvement on month-on-month basis and we expect it to get better going ahead,” Jindal added.

The country faced shortage in railcars, barrages and drivers leading to supply chain issues in the country through 2020.

While the US operations are a small part of the consolidated performance of JSW Steel, the company’s subsidiary has been bleeding the longest since acquisition and hence a turnaround plan amid the pandemic would be eyed closely, said analysts.