Liquidity crunch is taking toll on steel sector: JSW Steel's Seshagiri Rao

The demand for steel is on a declining trend as user industries are slowing down. JSW Steel Joint Managing Director and Group Chief Financial Officer Seshagiri Rao tells Ishita Ayan Dutt that the market is sluggish but the second half will look better. Edited excerpts:

1. Big steel companies slipped on performance last quarter, how is the market?

The big Indian firms that announced their results, both user and steel industries, have shown a declining trend. So, demand is definitely slowing down.

2. How is the current quarter looking like?

The same trend is continuing. The factors dragging the market are monsoon and liquidity crunch in the market. Also, the government spending is not taking shape. 

3. What does the steel industry need to get back on its feet?

There are a few things that the industry is expecting from the government. Steel imports are coming at very low prices and we would like the government to intervene the way other countries have. Most countries have imposed a safeguard duty. So, similar action is required to arrest the dumping of steel. The second point that we have been highlighting is monitoring of quality order. A lot of defective steel is coming into India whether it is tinplate or colour-coated steel. Importantly, what everyone of us is eagerly looking out for is funding by the Indian banks to the industry in general, specifically for this sector. Lack of funding is slowing down economic activities. 

4. What about the government’s spending?

There is a definite slowdown in the government’s release of funds for various projects. Last year, the government expenditure was front-loaded. The Budget was approved in February 2018, but we never felt the general slowdown which is a seasonal factor (April to September).   In the past six months, the government expenditure has slowed down, resulting losing steam and momentum.

5. When do you see a recovery in the sector?

The causes that have led to the slowdown — liquidity crisis and government spending — can be addressed quickly. The government has understood the gravity of the problem and is taking feedback. I am optimistic that the second half will look better with the government taking steps, backed by monetary policy support.

6. Has capacity utilisation in the industry dropped?

At prevailing prices and with costs not coming down to that extent, there is pressure on margins for several companies, particularly the secondary steel players. Hence, this will play out by lowering production.

7. Has JSW’s capacity utilisation dropped?

As far as JSW is concerned, we have given a guidance of 17 million tonnes and we are on track to meet it. 

8. How badly are the secondary producers affected?

Secondary players deal majorly in long products segment. The drop in long product prices is much steeper, which is definitely an indication that there is distress in the sector. 

9. Is your capex going to be lowered?

We are at the fag end of completing our expansion project at Dolvi. We have guided that we will complete it by March 31, 2020. So, we are just seven months away from completion. By the time the economy starts looking up, there will be an additional capacity.

10. The resolution process for Bhushan Power & Steel has completed two years. How is the delay impacting your plans?

There is an uncertainty and it is a cause for concern. We have to earmark large amount of credit lines for these acquisitions. So, it is not possible for anybody to keep these lines alive for long. That is one challenge that we are seeing from the funding point of view. And, when the industry is facing challenging times, it is important that a strategic player runs the unit because several strategic and tactical decisions have to be made on a day-to-day basis. It is not in the interest of the unit to be run by a resolution professional.