Steel demand in India has improved to better than pre-COVID levels driven by increase in infrastructure spending and demand from the real estate sector, but cost pressures continue to weigh heavy on the sector, said VR Sharma, Managing Director, Jindal Steel and Power Ltd (JSPL), in an exclusive interaction with BusinessLine.
Demand for steel was better than pre-Covid levels and is expected to improve with the government’s focus on infra in the Budget and increased demand from real estate.
Pent-up demand in auto is also visible.
Long products (steel), which find usage in infra projects, account for 70 per cent of JSPL’s portfolio at present. Demand for rebars and wire rods to rails is expected to rise amid the government’s infrastructure thrust in the Budget.
In January, JSPL saw its monthly sales increase 6.95 lakh tonnes, up 20 per cent, y-o-y; against a production of 6.82 lakh tonnes. Export share rose to 31 per cent (from 28 per cent in December 2).
“Considering improved demand in India, post the Centre’s infra thrust, we will be looking to restrict exports around the 30 per cent (of sales) levels,” Sharma said.
Cost pressures
Coking coal prices are a cause of concern as they continue to be on the higher side. But, Sharma believes there could be some price moderation happening post April, when new “lower priced” coking coal stocks hit Indian ports.
As of now, the stock that is there in the pipeline is “costly” and the MD explained that increase in coking coal prices will lead to hike in steel prices.
According to him, coking coal prices have reached one of the highest levels, at present at $445-450 per tonne (ex Australia), which means that the price moves up to $480 per tonne when they land at the Indian ports. Mining in Australia was calibrated at around 50 per cent of the usual levels on account of rising Covid cases and related curbs.
Nearly 60 per cent of JSPL’s coking coal requirements are met through imports from Australia.
“The price pressures are expected to continue over the next two-to-three odd weeks. In Australia, workers are coming back to the mines and production is picking up. So we hope that by end-February the stock situation should improve. And by April, when the lower priced offerings become available in Indian ports and across the world, there could be some respite to steel industry and on end-user prices,” Sharma added.
JSPL, post its Q3FY22 results, said premium hard coking coal prices have shot up and rising seaborne iron ore prices have also triggered an increase in domestic iron ore costs. Prices of iron-ore are moving up by $6-8 per tonne over the “last few days” too.
“However, when price of coking coal comes down, all other input costs are expected to moderate – furnace oils, freight and transportation, ferro-alloy prices and so on. So, we will pass on the benefits to consumers too,” he said.
Supply of coking coal from captive mines in Mozambique, and Australia, coupled with iron ore from Kasia and Tensa mines in India, should provide some relief.
Energy crisis
According to Sharma, there is also an energy crisis worldwide and gas prices are up in Europe and the UK. In April, gas consumption across European nations and rest of the world is expected to come down and there could be some solution to the Russia-Ukraine stand-off thereby leading to softening of energy prices, too.
“The US is also pressuring OPEC to increase oil production. So if this happens, then the various industry, including steel, will have some respite (on high cost environment),” he added.
JSPL has already announced a ₹18,500-crore capex — primarily through internal accruals — to double the Angul (Odisha) plant capacity to 12 million tonnes per annum.