BL Interview. We are treading cautiously on global steel outlook: Seshagiri Rao, JSW Steel

One is by the US government – the Inflation Reduction Act with $739 billion outlay - which has been passed. But, there is one provision where the US is giving more and more importance for energy transition using the materials and minerals within that country or if the same is sourced from friendly countries with whom they have FTAs. So, we feel this is a restrictive trade-related act.

In addition, we are hearing of Europe’s imposition of Carbon Border Adjustment Tax. Even this initiative is being used to restrict trade, particularly a developing country like India. If you look at us, India has set a target to reduce carbon emissions and become neutral by 2070(including in steel). So the question is, if we follow our national plan, then why will we get penalised for exporting to Europe. But at the same time, the European countries’ allowances are getting continued up to 2032 or even beyond.

This is unfair on India. European companies have emitted enough carbon in the past and that is why we are suffering now. And they can’t penalise us for that.

Some of the other economies are not doing too well either. And we really don’t see a reason for a turnaround in 2023.

Now, at present, the good news is China opening up again by relaxing Covid restrictions, including easing of guidelines to lending in the property markets. This was perceived as positive for the commodity industry, which led to increase in prices across steel, copper and so on. But we need to keep in mind, the growth here is now consumption driven, not investment driven. One has to wait and watch how it plays out.

Overall, we are taking a cautious approach for the steel sector as far as the global scenario is concerned.

Here we see good demand for steel. Revival in the infra spending, PLI-related manufacturing, residential construction activity picking up, metro lines, pipelines, freight corridor, renewables are some of the positive indicators. Over and above that, export tax withdrawal since November is encouraging. So, Indian steel demand in the first 9 months of the year has gone up by 11.5 per cent, almost a million tonnes more every month.

Yes, increasing imports are a matter of concern. Quarter-on-quarter imports are up by 40 per cent for 9 months. So, imports are increasing into India, and at the same time, exports have fallen by 27 per cent quarter-on-quarter and 59 per cent year-on-year.

But if you look at import patterns, some of them are distressed cargo from Russia and China.

At present, Indian prices are cheaper by 5–6 per cent over imported offerings.

But exports may need to improve in January-March over October-December; but we will not be able to reach FY22 numbers, primarily because of depressed global demand and recession in some of the economies.

Other countries respond to trade concerns through a much robust framework, as compared to India. Investigations are quicker, and principles are clear. But here, it takes so long to complete an investigation. Also, the surveillance mechanism at ports are poor. Hence, despite having so many standards, it doesn’t have an impact on imports.

And thirdly, 60 per cent imports into India are from countries which have zero per cent duty and we have FTAs. All this will ultimately impact the capex by steel-makers in India.

Again, if I look at China, their focus has predominantly been on own consumption rather than export. Last year (2022), even when the economy was not doing well, they restrained their export to 2021 levels.

And there are certain growth areas like the Middle East and some of the Asian nations.

In Europe, there are quotas for Indian players. This quota has gone up since sanctions were imposed on Russia and the latter’s quota distributed among others. Impact of increased quota should be visible on Indian players in Q4FY23 (January–March) numbers.