The fat profit margin recorded by JSW Steel has come into focus particularly when the steel industry has been demanding extension of Minimum Import Price to protect itself from cheap imports. Buckling under falling demand and restriction on steel imports, small units are putting pressure on Government scrap MIP and various other duties on imports. Seshagiri Rao, Joint Managing Director, JSW Steel in an interview to Business Line justified the protective net. Excerpt:
What are the chances of MIP getting an extension?
In our view, the oversupply situation in the global market is still prevalent and not much has changed ever since MIP was introduced in February. So MIP should not only be extended but also expanded because there has been lot of circumvention happening. When MIP was introduced to cover 80 per cent of the imports, it was expected that shipments will fall by at least 50 per cent. However, imports have come down only by 26 per cent. A few variety of TMT bars used in construction sector are being imported as alloy steel which is not covered under MIP.
User industry feels that rising steel prices in India squeezed them out?
It is not possible for any one company to raise steel prices unilaterally as there is enough competition domestically. After a long time international steel prices have started looking up. China’s steel prices have increased 67 per cent to $450 a tonne from $270 a tonne in February when MIP was introduced in India. On the other hand steel prices in India have gone up by only 12 per cent when one compares June quarter with March quarter. In fact, prices in India are coming down since May due to weak demand and onset of monsoon slowing infrastructure activities in the country.
Does MIP violate WTO agreement?
It is totally a misconception. WTO member countries point to Article 11 of General Agreement on Tariffs and Trade to say MIP is not WTO compliant. Out of curiosity I went through the Article 11 and found that there are exceptions to this rule in Article 19. It can be applied on three counts when there is a sudden surge in imports of any commodity, injury caused to domestic industry due to large scale imports and shortage of any food items. So when they talk of violation to Article 11 they should look into the exceptions provided for it in Article 19. Interestingly, the same was also adopted in Indian Customs Act.
It is also viewed that MIP is eroding the export competitiveness of Indian industry?
Exporters always have an option to import steel without paying duty or MIP under advance licence. Moreover, steel prices in India are always in line with the international trend. So to say MIP is eroding export competition does not hold true.
How much of the total imports in June quarter is through Advance Licensing?
This data is not available right now. One has to analyse the whole import and arrive at this data. The fact of the matter is imports have not fallen as envisaged when MIP was introduced and over 50 per cent of imports have come in below MIP. If you take the current average of 6.5 lakh tonne of imports a month, it works out to 7-8 million tonnes an annum. This kind of imports will derail the domestic steel companies.
Has MIP helped JSW Steel record highest ever Ebitda and profit in June quarter?
It is true that our Ebitda and net profit has gone up when compared to last year, but if you compare sequentially our sales realisations are up by just one per cent. The main drivers for profitability are 12 per cent fall in cost and higher volumes. The impact of MIP was common for all steel companies in India. To credit MIP for our good performance is not correct.
Margins of user industry are squeezed due to high steel prices?
We have to really wait for the financial results of other steel companies and user industry before coming to a conclusion. Automobile companies have managed to increase prices even as steel prices fell between May-June. This is because auto sales were going up. So to blame it all on steel is not correct.