Steel prices have been on an upward spiral for the last few months and caught scores of user industries by surprise. The recovery in the economic activity is expected to keep the demand high in the second half of this fiscal despite concerns over rising logistics costs and high operational expenses. Seshagiri Rao, Joint Managing Director, JSW Steel spoke to BusinessLine on the outlook for the industry. Excerpts:
Will the demand sustain given another round of rising Covid cases globally?
The demand revival is a reflection of developments in China. It is framing its policies to achieve carbon prosperity and decarbonisation. These are the two themes on which it is planning its policies. This has led to a fall in investment in their residential property. Real estate in China was one of the major drivers of steel demand. Chinese steel demand this year is expected to fall by one per cent to 985 million tonne (mt) against 995 mt logged in the previous year.
The rest of the world’s steel demand has been buoyant with the government stimulus to fight Covid disturbances. The steel demand in the rest of the world will go up by 90 mt. This will be led by countries such as the US, Europe, Korea and India which are focusing on manufacturing sectors and energy transition. The stimulus by the government and low-interest rate scenario amid enough liquidity is also aiding faster recovery. The demand in the first half of this fiscal in India was 49 mt against 36.5 mt logged last year. The second half of the fiscal is always better than the previous half.
Why steel companies have accumulated huge inventory?
Steel demand is generally weak in the second quarter of the financial year. It fell by three per cent in the September quarter as construction and infrastructure activities come down due to the monsoon. The domestic slowdown in demand was substituted by large exports but the problem here is the congestion at ports.
The company has 1.55 lakh tonne of steel inventory at ports due to the non-availability of containers. The logistics cost which was on the rise has started moderating due to an increase in vaccination. This has reduced the turnaround time substantially and halted the steady rise in logistics cost.
Will high steel prices sustain?
The current underlying factors are pointing to firm prices. The demand in India and globally has been very strong. Moreover, prices will be driven by input cost. For instance, coking coal prices have gone up three times and other raw materials such as zinc, aluminium and refractory prices are on the rise.
This apart, freight rate is also on the higher side. With steel demand remaining strong and a sharp increase in input cost, the upward bias of steel prices will persist.
Have the domestic logistics issues eased?
Iron ore exports have come down substantially because of a sharp fall in global iron ore prices. This has enabled better movement of iron ore domestically. Exports use to block the entire logistics when global prices were higher. This was causing a lot of problems.
How is the demand for tinplate after BIS implementation?
Import of defectives has come down. This is helping Indian companies to operate at full capacity. Compliance with BIS standards is important and nobody can import defectives. The supplier has to be approved by BIS before exporting to India.
Karnataka miners have claimed that the State is losing ₹8,000 crore revenue due to e-auction and iron entering the State from Odisha. What are your thoughts?
By auctioning iron ore mines, the Karnataka government has gained heavily. Iron ore of 9 mt produced from the auctioned mines is giving more revenue to the State government than the royalty paid on 30 mt being sold by the merchant mining companies.
For the six months of this fiscal, about 16 mt of iron ore was auctioned in Karnataka. Of this, everything is sold except for 1 mt of fines and 1.3 mt of lumps. Every month, 2.6 mt of iron ore auction happens in Karnataka.
We are requesting the State government to auction more mines so that they get more revenue. Since we were not able to source iron ore at competitive prices in Karnataka, we source it from Odisha. International iron ore prices have fallen from $230 a tonne to $130 a tonne but Karnataka iron ore prices remain at elevated levels.
Today, the pellets plants are closing down due to the non-availability of iron ore at a competitive price. The claim that the Karnataka government loses loyalty if we bring from Odisha is a misconception. They should understand that Odisha is also in India.