Slowdown in auto and white goods is visible: JSW Steel's Seshagiri Rao

The steel industry is feeling the pinch from the slowdown in the auto and white goods segments. But JSW Steel Joint Managing Director and group Chief Financial Officer Seshagiri Rao tells Ishita Ayan Dutt the demand for the steel sector is still likely to be in the range of 7 per cent and the company would continue to grow. Edited excerpts:

What is the impact of the slowdown in India’s consumption growth story on the steel sector?

The slowdown in the auto sector is quite visible and reflected in the numbers that are coming not only from the particular sector but even from several steel companies. In addition to auto, we are seeing some slowdown in the consumption side, so discretionary spending on white goods are impacted. 

But at the same time, government expenditure remains robust, so that is keeping things ticking. We are hopeful that the demand as far as India is concerned will be in the range of seven per cent this year.  

If you see March, the demand for steel was over eight per cent. There could be some moderation going forward. 

But there are risks related to the global economy, how do you see that panning out for the sector?
 

That is a matter of concern for everybody. Several countries have stopped imports from export-dependent countries such as Japan, Korea, China, and Russia. So, there is a clear diversion to other countries. 

India's imports are growing and exports are falling. Fifty-eight per cent of steel that is coming into India is at zero per cent duty from FTA countries. If the trade war intensifies further, this may create more distortions. If the situation continues, we expect the Indian government to take appropriate remedial action without further delays so that the domestic industry is not hurt.

What kind of action do you expect from the government?

Countries where the trade remedial actions are taken have been done suo moto. For instance, when Europe imposed a safeguard duty of 25 per cent, the reason given was that the US had done Section 232. Same is the story with Canada and Turkey. 

Therefore, instead of waiting for some data to be given that needs to be investigated, India should do the same.  A suo moto safeguard duty is the only option. Second area that needs to be looked at is defectives. Defectives coming into India are six per cent of total imports. BIS standards wherever applicable should be enforced more steel products should be included. 

When do you see a revival in the auto and white goods segments?

Lending, particularly by the NBFCs, has slowed down dramatically. Auto and housing loans are majorly driven by the NBFCs in addition to banks and that tap is closed. 

The second reason for the slowing of automotive segment is globally there are structural changes that are happening in terms of moving towards battery and solar. So, there are a lot of changes from the technology point of view. 

Regulatory changes are driving a bit of the slowdown in India. We have to move to Bharat Standard VI from January 1, 2020. Hopefully, the auto sector will revive once these changes come through.

ArcelorMittal, which is strong in auto, is set to enter amid the challenges. How do you plan to cope?

In FY18, India's consumption was 91 million tonnes and 98 million tonnes in FY19. There is an incremental demand of seven million tonnes. In the current financial year, a 7 per cent growth is achievable in steel, which means another 7 million tonnes of incremental demand in India. So, supply and demand dynamics are there and there is place for everyone. The only worry is imports. As long as that is taken care of, the demand-supply scenario in India is skewed.

Are you looking at expanding capacity at Vijaynagar from 13 to 18 million tonnes?

There is a possibility but we have not taken a call yet. There is an opportunity to do that.

What kind of investment will it entail?

The investment will be significantly lower because the benchmark for brown field is Rs 3,500 crore per million tonne. So, we will be in that range.

So, what kind of capacity addition is JSW looking at?

We will be 24 million tonnes next financial year. We are working out the plans to achieve 40-45 million tonnes by 2030. Global capacity would be over and above that. 

What is the status of Bhushan Power & Steel acquisition?

The funding for Bhushan Power & Steel is already arranged. The hearing is over in the NCLT and orders are awaited.

Is it likely to be resolved by the second quarter?

Assuming no one goes for an appeal there is a chance it may happen in the second quarter.