‘India must take drastic steps to protect steel sector’

The global slowdown has roiled commodity markets and lowered steel prices to more-than-a-decade-low levels. Speaking to Bloomberg TV India, Kalyani Steel Managing Director RK Goyal said China’s decision to cut steel capacity may not be of any relief to India as they already have a massive production capacity of around 1.25 billion tonne, and produce 800 million tonne. Until and unless the Centre takes some drastic measures of anti-dumping or safeguard duties or minimum import price, everything is going to be very gloomy, he said.

The last two years have been terrible for the steel industry, with producers losing pricing power and facing the onslaught of dumping from China. As China starts to cut capacity, do you foresee better times for the industry?

Yes. First of all, China has a production capacity of around 1.25 billion tonne. And they are producing around 800 million tonne. So, if they announce that they will reduce capacity, maybe they will do so. But does it really means that they will reduce production? We are not very clear. Now, until and unless they reduce production the global steel market and global economy linked to steel and steel-related raw materials is not likely to improve. So it is very important they reduce the production also. And, as per reports, since the growth in China is coming down, the investment in real estate is coming down, and the demand for steel within China will be substantially lower as compared to last year. So if they reduce production by 50-100 million tonne, I think to that extent it will take care of only reduction in their domestic demand and the need (to cut output) is much larger.

While China is planning a capacity cut, the capacity utilisation at present is at around 70 per cent. So even if they are taking out capacity, what is the impact in terms of the steel pricing outlook?

As far as steel prices are concerned, as long as China and some other countries are dumping metal in India, I don’t see any improvement.

As we know, over the last few weeks steel prices have been cut by about ₹2,000-3,000 per tonne. Also, if we look at the industry scenario, there is very low capacity utilisation at present. How do you see the margins and utilisation shaping up over the next 12 months?

Until and unless some drastic measures of anti-dumping or safeguard duties or minimum import price are taken by the government I think everything is going to be very gloomy —whether it is capacity utilisation, whether it is the prices or whether it is the profitability of the steel industry in the country.

NMDC has seen a bit of a change in their pricing scenario as well. How are the input prices looking like at this point?

They (NMDC) are reducing price a little bit but that will hardly take care of the requirement of the industry. Today, we are competing with irrational prices and dumped prices from China. And you can’t compete with that. As long as rationality is there in the market you can compete and generate some money. Otherwise, it’s very difficult and you definitely incur losses.

At present, the margins of steel companies are at very low levels — many are almost operating at loses or at barely break-even levels. All the steel companies have been underperforming at the bourses over the last 24 months. Over two-three years, as the capacity gets out of the system, how much margin improvement do you see?

Even if some plants in India close down, the capacity may go down by 10- 20 million tonne. But the capacity which is available in China is almost 1.25 billion tonne and their production is 800 million tonne.

And if they export just 10-15 million tonne, the capacity evacuation by closure of plants in India will be taken over by China. And I don’t think they will rationalise their prices. Hence, Indian steel industry will be continuously in stress until and unless we have some trade barriers internally.

It appears that you are in a Catch-22 situation right now. What do you do? Do you cut production or cut prices?

We are doing several things. We are cutting production, we are reducing prices and we are reducing our costs substantially. We have cut all the flab, which is somewhat helping us.