JSW to raise steel prices by 2-3%, cuts spot sales

JSW Steel, currently running at a capacity of 50-60 per cent, is in talks with its long-term customers to raise steel prices in the range of three-four per cent.

Jayant Acharya, director (sales and marketing), JSW Steel, said: “The price increase for long-term contracts are under various stages of discussions with customers. Our monthly prices have risen by three-four per cent in October. The quarterly prices, depending on the product, segment, will be finalised soon. I would not like to comment on how much it would go up but the indication is of three-four per cent."

The long-term contracts are typically with auto, consumer durable companies, etc. Although customer sentiments are not as buoyant as the companies expected, JSW Steel is going ahead with the price hike because of the increase in cost of its steel production and the iron ore issue in Bellary. The company's margins dropped by 2.5 per cent last quarter and it is trying to make up with the price increase. Its profits dropped by over 71 per cent and the company lost nearly half a million tonnes of steel production due to non-availability of iron ore.

The steelmaker is meeting long-term customers’ steel demands by cutting down on its spot sales and liquidating inventory. Acharya said: “Within the quantities we are producing, we are able to service the long-term customers because they constitute 25-30 per cent of the total sales. Yes, steel spot sales have been impacted.”

The production of semi-steel has been hit the most, followed by long- and hot-rolled steel. He said: “In long-steel segment, we needed to take some maintenance shutdowns, so, whatever shutdowns we had to take, we took last quarter. We are by and large maintaining cold-rolled production."

The company has aggressively reduced its inventories to meet the shortfall of production. Typically, steelmakers like to have inventory levels of around two months. “We have reduced our inventories to meet customers’ demands. The inventory at the end of the second quarter was around 400,000 tonnes. It is roughly an inventory of 15-20 days. We have strategically reduced the inventory, levels to feed customers requirements during the shortfall,” he said.

Vinod Nowal, CEO, JSW Steel, said the company was hopeful of crawling back to 80 per cent of capacity utilisation, from the current 50-60 per cent, in the first week of November. He said: “The next iron ore e-auctions are on the 25-29 October and the plan is to go back to 80 per cent capacity utilisation in the first week of November. However, that depends on the auction and the iron ore prices, quantities, etc. We are even talking to the government to increase the iron ore dispatch time to 24 hours from 12 hours at present. That is a major hurdle to get iron ore to the plant.

Seshagiri Rao, joint managing director and group CFO, JSW Steel, said JSW Steel had managed to buy 56 per cent of the total iron ore auctioned in Bellary over the last month but had managed to receive only 18 per cent at its plant due to the logistic and transportation hurdles.