The devastation in Japan has once again made global businesses curious. While one view is that it may again put the world in the grip of a recession, others view the present challenge in Japan as an opportunity to create demand for building infrastructure. Undeterred by global sentiments, the country?s largest steel producer, Steel Authority of India Ltd (SAIL), is continuing with its expansion programme at full throttle to maintain its status of a major supplier of in the Indian market. SAIL chairman CS Verma lists the challenges faced by the company in an interview with FE?s Nirbhay Kumar and Subhash Narayan.
What could be the possible fallout of the crisis in Japan on global steel companies?
Japan is one of the largest producers of steel. While steel companies have largely been unaffected, the production stream is likely to take a hit. The country?s ports have been damaged by the tsunami. This could restrict raw material flow to the mills. Steel mills in Japan import about 9 million tonne of coking coal annually. The key input is presently costing about $330 per tonne in the international market. There could be some softening in the price of coking coal in the short-run since Japanese import of this would fall.
The cost of coking coal has become very unsustainable for steel makers in the country squeezing the margin. Cooling down of coking coal price would bring some relief to steel manufacturers. Going forward we expect good demand of steel from Japan as the country undertakes rebuilding of its infrastructure. The demand especially for long products would go up.
Would there be any impact on your terms of agreement with Kobe Steel in the face of the Japanese crisis?
We had talks with Kobe. They are not affected and are by and large safe. Our partnership with the Japanese company would continue for building Jagdishpur plant. Our agreement with Kobe covers areas of technology and project execution. We at SAIL are committed to expand hot metal production capacity to 23.46 mt by 2012-13. The company would have a total production capacity of 60 mt annually by 2020.
In the last quarter the company had said that its bottom line had been impacted by the rising input cost. Can one expect better Q4?
The last quarter of a fiscal is generally better for the companies. In the January-March quarter the input cost has certainly eased. Moreover, we are selling good volume of steel. The company would meet its sales target set in the MoU for 2010-11. We expect to have a brisk quarter.
There has been delay in your proposed FPO. Isn?t it affecting your capex plan?
We are not depending on the proceeds raised through FPO for our expansion plan. Since our cash deposits have gone up, we are in the position to borrow from the market at very low rate of interest. Banks are willing to lend us on 200 basis point lower than the prevailing rate of interest. Besides, the company is getting very attractive return of over 10% on its deposits. The proposed share-sale is expected to come by early next fiscal.
What?s the update on SAIL?s overseas ventures?
We are very soon opening office in Indonesia. Some people will be deputed there. A geologist and some other people would be stationed there to see the linkages. We have already identified assets there and the government has offered to acquire mines. The mine will be acquired by ICVL and the steel plant would be set up by us. In Afghanistan also we have applied for mining lease on our own. The award process would take about three years.
By when is the JV with Posco expected to be finalised?
We are on the positive path of resolution of all the issues. We are in the last leg of discussion with them.