The current economic slowdown has hit steel companies the most. Apart from a sharp fall in demand, the iron-ore mining ban in Karnataka, Goa and Odisha has pushed up operational costs. With a production capacity of 10 million tonnes (mt) a year in Karnataka, JSW Steel had to invest heavily on backward integration to overcome the impact of the mining ban. The company has drawn up a detailed expansion plan for investing ₹12,000 crore in the next two years.
In an interview with Business Line , Seshagiri Rao, Joint Managing Director of JSW Steel, says he’s confident that the issues relating to mining will be sorted out soon. Edited excerpts:
I remain very positive. It’s a proven theory that sentiments change fundamentals, though the trend used to be otherwise earlier. Things have changed, today everybody is feeling good. We have the potential, skilled manpower and natural resources. We have to leverage this in order to see how India can take its rightful space in the global economy. A little bit of reforms in a manner to revive investment cycle and restart manufacturing activity is the need of the hour. These things can be undertaken by the budgetary and legislative process.
How do you see steel demand?
Steel demand is estimated to rise 3.3 per cent this fiscal over 0.6 per cent last year. We have achieved 0.6 per cent growth when the GDP growth was 4.6 per cent. The investment cycle slowed down, leading to huge impact on the overall steel demand last year. We expect a pick-up in construction, real estate and infrastructure this year. These sectors will give a fillip to steel demand. We are already seeing improvement in TMT bars demand used in construction. It’s the lead indicator of a turnaround in the economy.
Do you see steel supply exceeding demand?
The surplus steel capacity will disappear when the demand comes back to 9-10 per cent. In fact, there will not be enough steel production capacity in India if the demand reaches that level. It takes three-five years to expand a project and it takes even more time for a new steel project because of difficulty in land acquisition. Steel companies that can expand quickly and have land for new projects are well positioned to take advantage of possible turnaround in demand.
Can the Budget address the issues in mining? What is the role of the Government?
I do not think that it can be addressed in the Budget. The issues related to mining are being dealt in the courts. The Government can bring in the new Mining and Minerals (Development and Regulation) Amendment Bill, which should allocate mining concessions to companies, which focus on value addition.
Whether it’s auction or allocation of mines, a transparent process needs to be chalked out with least discretion to the bureaucracy under the Act. The opening up of mining in Karnataka and auctioning of stocks in Goa is itself giving a boost to the commercial vehicle sector and yellow goods industry such as cranes, conveyors and forklifts.
Why is revival of mining in Karnataka taking time?
About 20 mt have become operational in Karnataka. Another 4-5 mt will come in by the end of this year. Delay in implementation of rehabilitation and resettlement is the major reason for slow progress in opening of mines in Karnataka even after Supreme Court order. Renewal of expired environment clearances is taking time. The mining plan has to be re-drawn and again approved by IBM (Indian Bureau of Mines). Pollution control licences that have expired needs to renewed. All these applications are bunched together leading to delay.
How much of iron ore will you buy from Goa?
I believe there are about 11-12 mt of iron ore to be auction in Goa. We will participate based on the quality and price besides the ability to move the material to our plants. We have used a small quantity of Goa iron ore in our Dolvi unit.
Though there are concerns over quality, we have to use these iron ore due to huge shortage in the market. We have the option of blending the low and high-grade ore besides beneficiating low- grade iron ore at our plants. We may also use the low-grade ore in the Vijayanagar unit where we have a big beneficiation plant.
Will it be viable to move iron ore from Goa to Karnataka?
The transportation cost will not be an issue considering that we are importing iron ore. In fact, import of iron ore will be slightly cheaper than moving it from Goa as international prices have fallen sharply. We have to run our steel plants. It’s not possible to switch on and off as per iron ore availability.
We are planning to import half-a-million tonne of iron ore every month this fiscal from South Africa and Canada. Last year, when Indian steel companies were not able to operate their plant at full capacity, India exported 14.5 mt of iron ore and imported 6 mt of steel. This is an anomaly in the overall policy. We cannot afford to import steel at $600-700 a tonne and export iron ore at $100 a tonne.