JSW Steel is all set to raise its production capacity to 18 million tonnes (mt) from 14 mt by December. The capacity addition comes when the industry is going through challenging times. Despite the 20 per cent safeguard duty, imports have been rising with the user-industry working around the levy. Seshagiri Rao MVS, Joint Managing Director, JSW Steel, spoke to BusinessLine on various issues confronting the industry. Excerpts:
Has the 20 per cent safeguard duty on HR coil helped the industry?
It has stabilised hot rolled coil prices. The Government should exercise caution as importers are now circumventing this duty by under-invoicing imports to reduce the impact of safeguard duty. Importers are classifying shipments as alloy steel or API grade steel to avoid duty. Some imports are coming in in the form of advance licences. There is a sharp surge in some products such as colour coated, cold rolled (full hard) coils, wire rods and long products, which are not covered under the safeguard duty.
In the last six months, though there was a four per cent growth in steel demand in India, domestic production has fallen by 0.5 per cent. Not only the incremental growth in demand is met by imports, they are also displacing the domestic industry.
Are we, in a contradiction to the ‘Make in India’ initiative, driving away value-addition in steel?
Absolutely. Today, everybody wants to make steel and sell wherever they can. It is a capital-intensive industry. In order to minimise their fixed cost, steel companies across the world are maintaining their volumes. Instead of cutting production, even the marginal cost producers are continuing their production and their governments are supporting them by way of indirect subsidies.
Whether it is value-added or commodity product, our Government needs to take steps to avoid unfair competition. Some countries offer 9-17 per cent export rebate and give funding at low cost. There is no level playing field for the domestic industry to compete.
What is your view on raw material prices?
I expect the bearish price trend to prevail in both coal and iron ore for the next two years. Coal imports by China are falling substantially month-after-month.
Has iron ore availability improved in Karnataka?
To an extent, yes. Last year, the State produced 14.6 million tonnes (mt) of iron ore and this year it is expected to touch 24 mt. We had an opening inventory of 1.2 mt of imported iron ore for this fiscal. As of October 1, we had four lakh tonnes of the inventory. Most of the iron ore required for the Vijayanagar plant in Karnataka is sourced domestically. The iron ore situation is far better for this fiscal with 15-20 mt of incremental iron ore availability in India.
How do you see the Modi Government’s progress?
The domestic investment activity is yet to pick up. This is largely due to lack of demand. Exports are falling across sectors and the external economy is not favourable. This is causing strain in certain sectors. At the same time, lot of imports are coming into India. Imports are increasing in sectors where there is surplus capacity. So imports are increasing in quantitative terms and exports are falling, domestic demand is not robust and investment cycle is yet to revive. Thus, we are seeing lot of stress in the economy, especially in the manufacturing sector.
This is reflected in the banking sector by way of increasing bad loans. However, there is traction in certain sectors due to various initiatives taken by the Government. The revival in mining activity had an impact not only on commercial vehicles but also on construction equipment such as dumpers and excavators. We see lot of Metro and road projects being awarded and there is some traction in solar projects. We sell a product Galvalume to fix the solar panels for which there is lot of enquiries and many of them are getting converted into orders. The Government initiatives are not leading to robust demand because there is surplus capacity due to fall in exports and slowdown in domestic demand. There is still a strong headwind.
Do you think that corporate houses are losing patience?
I think the Government is moving in the right direction. The issue is some transformational reforms such as GST, land and labour reforms need to be done at a faster pace. But these are not happening at the pace the industry would like. At the same time, some of the things that have been done cannot be undermined. Having said, that there are some positives including the lending rate cut and the macro economy is looking better than what it was a few years back.
Why are foreign entities making more investments than India companies?
I do not think so. In sectors where there is stress, I do not see any foreign companies making investments. Industry like steel, where there is huge amount of stress, there is no big investment by foreign companies. Similarly, with aluminium. There is huge stress on the commodity side both domestically and globally. However, sectors such as electronics, electrical items, mobile phones, consumer durable items, solar projects, defence, railways and urban infrastructure are attracting traction from foreign investors. The traditional industry is not attracting investment because of the international commodity crisis.