No uniform policy a big hurdle for production: AMNS India CEO Dilip Oommen

Infrastructure steel consumption has not picked up yet. Some steel consuming segments like auto have started their production. Full revival will take some time, says Dilip Oommen

ArcelorMittal Nippon Steel India (AM/NS India) is operating at full capacity after a production cut in April and early May, but Dilip Oommen, chief executive officer, tells Ishita Ayan Dutt the real challenge will be to get domestic demand back on track. Edited excerpts:

Between Lockdown 1.0 and 4.0, has demand improved?

Yes, but it is still much below the normal pre-Covid levels. Certain segments like rural-led demand have recovered faster and better. With a series of economic packages and easing of lockdown in many parts of the country, the economic activity is gradually gaining momentum.
 

Infrastructure steel consumption has not picked up yet. Some steel consuming segments like auto have started their production. Full revival will take some time. Marketing strategies have to change post-Covid to remain relevant.
 

What is the current level of capacity utilisation at AM/NS India?
 

After the production cut in April and early part of May, we are operating at full capacity.

What factors enabled ramp-up during Covid?
 

AM/NS India has put in place a detailed SOP to be followed during Covid. It is rigorously monitored and as a supplementary measure regular audit is undertaken. These measures have ensured that AM/NS India continues to remain Covid-free.
 

The support from the government, including the steel ministry, the progressive restoration of logistics and supply chain, and producing to orders have enabled us to ramp up production. The migrant labour issue still persists in many parts of India.
 

How will maintaining protocols impact cost?
 

It will have an impact on cost but it has to be borne. Health and safety of our employees is of paramount importance. Covid is not going to disappear anytime soon. So we have to live with it and these are the costs that will be incurred to ensure the health and well being of those who work at our facilities, their families and surrounding communities.
 

How would you balance cost on other fronts?
 

With demand having tapered and pricing under pressure, cost reduction measures are being taken. So, we are looking at fixed and variable costs, improving operational efficiency and margin maximisation.
 

You have acquired a power plant, how will it help reduce cost?
 

It will help us reduce our power cost by reducing fixed cost and will reduce variable cost by generating power using natural gas. Fortunately, the price of natural gas has come down.

A lot of relaxations have been made to the lockdown, what are the challenges now?
 

Capacities have already been ramped up on the basis of top-up demand from exports, the real challenge is to get the domestic demand back on track. Also, with migrant labour issue, road movement is affected due to non-availability of drivers.
 

The lockdown in India was the most severe in the world and done with an objective to contain the spread of virus. To give perspective, in April, India’s crude steel production declined by 65 per cent (YoY), while China maintained at last year’s level. Even in severely affected countries like the US and Germany, the decline was 32 per cent and 11 per cent, respectively.
 

The challenge in India is that the polices are not uniform across geographies. For the purpose of easing of lockdown, the country has been divided into green, yellow, and red zones, leading to disruptions in supply chain. Here again, individual districts have issued their own guidelines. This has been a major deterrent for production ramp-up in various sectors, especially the ones that consume steel. I think the government should allow the organised sector to self-certify themselves on procedural compliance.
 

Will the stimulus help the steel sector?
 

This stimulus (which I like to call economic package) is more structural in nature as a lot of measures are monetary and not fiscal. I am not an economist who can decipher the package, but from a business perspective, it will be sometime before the benefits show a positive effect on the economy. The four “L” of reforms — land, labour, law, and liquidity — will further provide impetus to accelerate growth.
 

How has Covid-19 impacted AM/NS India's expansion plans?
 

They are on track, no change. We remain positive on India
 

What kind of support does the steel sector require?
 

The government should loosen purse strings for infrastructure spend. This must be front-loaded as soon as possible. Second, vehicle scrappage policy should be expedited. Third, export incentive must be announced to make India more competitive in the international market. Fourth, the bank interest rates should come down to move in tandem with the RBI policy. All said, I think Indian business has to move out of ‘lockdown’ mode to ‘looking up’ mode. We are a large country with amazing latent demand, which can be propelled if right steps are taken by all (not only government).