There is scope for increase in steel prices: Seshagiri Rao, JSW Steel

After hitting bottom, steel prices have increased two months on the trot. JSW Steel Joint Managing Director and Group Chief Financial Officer Seshagiri Rao tells Ishita Ayan Dutt that a positive momentum from government expenditure and retail side is noticeable. Edited excerpts:

Can you chart the slowdown in domestic steel demand?

Steel demand growth at the end of March 2019 was at 8.8 per cent. Two things happened. One, credit flow to the economy was impacted, and then there was slowdown in government expenditure. Together, these two factors translated into a big slowdown in the following quarters.

In the first quarter, steel demand growth came down to 6.6 per cent and in the second quarter, it climbed down further to 2.3 per cent. As things panned out, in the third quarter (Q3), it will be lower than 1 per cent. But month-on-month, there is an improvement since September. 

In November, growth in steel demand was 0.7 per cent, whereas in October, it was 0.3 per cent. In September, steel demand slipped into negative territory. It was at minus 0.25 per cent. That turned positive in October and further positive in November. Now, December is even better, though the average growth for Q3 will still be 1 per cent. But we feel a positive momentum for the next quarter.

Which sectors are driving growth?

Basically, we are seeing demand coming back on the retail side with restocking. The second area is government projects. Activity is restarting in areas like pipelines, bridges, construction, and Metros. 

Steel prices have increased in two consecutive months. Is there scope for further increase?

At today’s price of $520-$525 cost-and-freight, against landed cost of imports, there  is difference of Rs 2,000-2,500 a tonne. There is definitely scope for further increase in price. 

When do you see a full recovery?
 

Around 55-60 per cent of steel is consumed by the infrastructure, construction, and real estate segments. On the real estate side, there is momentum in the below Rs 1-crore housing segment and there is also economic activity in the affordable housing segment. Other areas seeing a lot of enquiries are construction of warehouses and data localisation, which entail setting up data centres. The balance 40 per cent of steel consumption is accounted for by automobile, machinery, and capital goods sectors. These sectors will take some time to recover. 

What is the outlook on prices next financial year?
 

On the demand side, globally, growth next year is pegged at 1.7 per cent, which translates into 30 million tonnes (mt) over this year. 

But on the supply side, significant corrections have happened. May 2019 versus November 2019 numbers from World Steel Association clearly show supply-side adjustments of 180-200 mt. That is significant.

We have seen steep correction in coking coal prices because of adjustments. But it has not happened in iron ore, which continues to be elevated. As long as iron ore price remains at these levels, steel companies will not have the margins to reduce prices further.

What is the steel industry’s Budget wish list?

We would primarily want demand to be stimulated by way of increased outlays on infrastructure. We would also like a reduction in personal tax, so that more and more money is spent, which will spur consumption. Third, import duties on various raw material items need to be reduced, while import duty on steel should be increased. 

When do you see private sector investment coming back?

Today, there is huge risk aversion from the Indian banking system. Even though there is better flow this quarter, the overall lending by banks is slow. Large projects need funding. Therefore, banks should start lending more.

Also, developmental financial institutions need to be created that will lend to either public-private partnership projects or long-gestation projects. 

When do you see resolution in Bhushan Power & Steel (BPSL)?

BPSL will require National Company Law Appellate approval. Once the amendment with regard to Prevention of Money Laundering Act happens, the other two issues that are pending before the appellate tribunal will have to be cleared. One is claim on profits during corporate insolvency resolution process and the other, contingent liabilities. 

Do you have any plans of inducting a partner in BPSL after implementation of a resolution plan?

All I can say is that, we will have a similar structure like Monnet Ispat, where consolidation will not happen.