State-owned steelmaker Rashtriya Ispat Nigam Ltd (RINL), having completed its 3.3 mtpa expansion at an investment of around R12,300 crore, is about to add another 1 mtpa capacity at a cost of R4,000 crore. In an interview with FE’s Surya Sarathi Ray, chairman and managing director P Madhusudan said the company is looking at another R22,000 crore capex. Excerpts:
RINL has now 6.3 mtpa steelmaking capacity. What is the plan for future expansion?
The capacity addition to 6.3 mtpa is over now. With our ongoing modernisation programme at a cost of R4,000 cr, we will be reaching to 7.3 mtpa by the end of this year. The company has taken up a matching downstream facility addition programme as well, which will be completed by the end of calendar year 2017.
All these are long products. Any particular reason for this?
When the expansion programme was conceived, the forecast at that point of time indicated additional steel demand to meet infrastructure requirement. Accordingly, long products were selected. I also strongly feel that with the government’s focus on infrastructure, the demand for long products would continue for the next few years. However, in our next
phase of expansion, we will be having a balanced product mix with flat products also in the product basket.
When do you plan to start your next phase of expansion and with how much of investment?
Our focus now is ramping up production, completing modernisation and consolidation, which will take one to one-and-a-half years. Then we would venture into the next phase of expansion to add another 4 mtpa capacity. Some primary work has already been done. Based on the market conditions, we would time the expansion. As indicated earlier, we would be including some niche flat products and the investment would be to the tune of around R20,000-22,000 crore.
How do you plan to fund the expansion?
Today, our long term debt-equity ratio is less than one. Therefore, we have adequate leverage to source funds to meet the requirement. Moreover, from the time we start, the cash requirement would be almost five years down the line, by which time we would have generated some internal resources as well from our 7.3 mtpa facilities to meet the balance capex requirement.
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Will you go for a tie-up?
As I told you, we have not yet firmed up the product mix for the next phase of expansion. Any tie-up would be decided after we finalise the product mix.
Do you have the required skill set to produce flat products on your own?
RINL’s strength is its skilled manpower and its expertise in steel making. Production of flat products, therefore, should not be a problem and with little bit of training, RINL has capability to master the technology.
What about the listing of the company?
The government was planning to divest 10% of its equity and is probably waiting for the markets to firm up. The timing would have to be decided by the government.
Is there any concern on the raw material front?
Availability of raw material is not a concern. We get our iron ore from NMDC and being a shore-based plant, coking coal is imported easily. However, as RINL is not endowed with captive mines for the major raw materials, it has to purchase these materials at market prices, and therefore, is in a disadvantaged position when compared to many of its competitors, who have captive sources for these raw materials.
Since costlier coking coal has caused a lot of dent in steel firms’ bottom line, will you go for acquiring mine overseas?
Our current focus is now on ramping up production, completing modernisation and consolidation. Prices of coking coal have already started coming down and may settle at around $170-180 in coming months.
You got an iron ore mine in Rajasthan. Are you working on that?
MECL had done the detailed exploration of the mine and it is found that reserves are not very encouraging. Compared to the estimated reserves of 200 million tonne of low-grade iron ore, it is found to be very low. So, we have planned not to pursue the mines further.
What about steel prices?
Steel prices during the last three to four months have been increased by around Rs 6,000 to Rs 7,000 per tonne to partly offset the spike in coal prices. Coking coal prices have already started dropping to around $180 and its movement in coming months along with the steel demand spectrum will determine steel prices.
However, with the business scenario improving in the country, coupled with low interest regimes, new investments would be coming up, spurring the demand for steel, and I feel the prices are likely to sustain.