Our capacities are just in time to meet growing demand: JSW Steel's Acharya

He tells that short-term challenges will not be a direction for its overall expansion in the medium to long term

A surge in steel exports from China has been casting a shadow on the global steel industry. As steel prices slipped, the country’s largest steelmaker, JSW Steel, reported an 84 per cent year-on-year decline in consolidated net profit in Q2FY25. In an audio interview, JSW Steel, joint managing director and chief executive officer, Jayant Acharya, tells Ishita Ayan Dutt that short-term challenges will not be a direction for its overall expansion in the medium to long term. Edited excerpts:

 

Steel prices have moved up from the lows of Q2, but on the raw material side, iron ore prices have increased. What is the outlook for Q3?

 

Q2 was a challenging quarter because of the overall environment which was compounded by the Chinese exports and high imports coming into India. We made up for it through lower cost.

 

The Indian operations did better in terms of Ebitda/tonne than the quarter before. The volumes were also very strong. Crude steel production and domestic sales were the highest. So, that was a positive despite the challenging environment.

 

We expect that India will close the year with around 150 mt of demand in India. Therefore, H2, which is seasonally stronger, will be good.

 

We will have volumes kicking in from Indian capacities – from JVML (JSW Vijaynagar Metallics Limited (JVML) and Bhushan Power & Steel (BPSL) – which will go into the tailwind of a strong demand in the second half.

 

The cost will go down, despite a negative surprise on the increase in iron ore price in India. Coking coal cost is going down by $20-25 a tonne in this quarter. We will improve our sourcing of iron ore from captive mines which will enable us to offset the iron ore challenges.

 

Steel price increase took place in October because international prices went up after the China stimulus, which was reflected in India. So, increase in price, lower cost, good volumes – that’s how we see Q3 and Q4.

 

Did you see a slowdown in demand from the auto and infrastructure segments in Q2?

 

We had the highest ever sales to automotive in the first half. On the rural side, some segments are seeing a pick up, especially two-wheelers and tractors. Passenger vehicles, which have been a bit slower, will pick up in the festive season. Also, the approvals that we have with various automakers hold us in good stead.

 

Our sales to renewable energy in the first half were very strong. Branded sales in the first half were better even as the commodity part was slow on account of imports. We did well in the infrastructure and construction segments.

 

But government capex has been slow?

 

Steel demand in H1 of the last financial year was 64 million tonnes (mt); in H1 of this year, it stood at 72.7 mt. That is a big change despite slower government capex.

 

Private capex has also started. We have seen the government capex picking up in Q2 which is resulting in an improvement of long steel sales. Long prices bottomed out earlier than flat steel. That is reflective of a stronger oncoming infrastructure and construction demand.

 

Have steel prices bottomed out?

 

Prices have bottomed out. In China, many companies were in losses. Therefore, there was a need for prices to correct to come to some reasonable levels.

 

But the prices reflected are not high compared to earlier levels. In India, the hot rolled coil (HRC) price from April and as we exited (the September quarter) is lower by almost Rs 5,500-6,000 a tonne. That was primarily on account of import pressure. TMT also fell but to a lesser extent. In absolute terms, both the numbers are much lower from a year back to where we are right now.

 

You have projected a capacity of 50 mt by 2031. Do imports pose a risk to capacity expansion?

 

Over the last two decades, we have had several cycles – 2008, 2015, and then Covid. We completed two expansion projects during Covid – our Dolvi expansion and JVML. We managed both.

 

The capacities are just in time to meet the growing demand in India. This will play out again. The short term is not a direction for the overall medium to long term. India as a country will remain strong going forward in this decade.

 

Our capacity expansion plan – Phase 3 at Dolvi by September 2027 and our blast furnace augmentation at Vijaynagar, which we have postponed a bit – will certainly happen.

 

Electrical steel is a high-margin product, how will the acquisition of thyssenkrupp unit in India boost margins for JSW?

 

Our journey of focusing on value-added specials continues. We are looking at this facility for two reasons. It is a very critical product today with the electrification going on in the world. This goes into the making of transformers and generators which India is largely importing.

 

Also, this technology is available with a few. We have acquired and housed this technology in JSW Steel. So now, JSW Steel will be one of the few to have the technology for HRGO (hot rolled grain oriented steel) and CRGO (cold rolled grain oriented steel). JFE (the JV partner for the asset) already has it.

 

We see scalability for the high-margin product in this asset – it can be expanded quickly. There is a ready demand in the market. The government is also very keen that production of this product in India should be hastened. We are quite positive that this will contribute very well to the margins of the joint venture.

 

You are looking forward to a better H2. Is the expectation completely on the back of the domestic market or do you see exports picking up?

 

Exports will improve to some extent going into H2 because international prices have picked up somewhat. Usually before the winter holidays, the seasonal demand is slightly stronger. But our focus will remain mostly on India.