Steel Authority of India (SAIL) is putting up a brave face despite many odds. Falling steel demand, rising iron ore and coal prices, and the volatile stock market delaying its follow-on public offer (FPO) have not dented its chairman CS Verma?s optimism. The company sources its entire iron ore from captive mines unlike rival private sector companies which pay global prices.
Steel consumption would grow in sectors like construction, machines and equipment, manufacturing and also automobiles, says Verma in an interview with FE?s Debabrata Das. Excerpts:
How is the demand situation for steel as compared to last year?
The demand for steel is generally tied to the growth of GDP, which is expected to be around 8% to 8.5 % during 2011-12. It should be reasonable to expect that steel demand should see a growth of at least 9-10%. Though the demand growth during April-September 2011 has been 1.8% vis-?-vis April-September 2010, it is generally seen that after the monsoon, the construction activity picks up and is at its peak. The likely growth in infrastructure related projects in the power sector, highways, ports, airports and industrial construction etc. indicates strong demand ahead for steel.
Which segment is seeing better demand, long or flat products?
I foresee that the growth in consumption would be achieved from steel consuming sectors like construction, machines & equipment, manufacturing and also automobiles. Therefore, both long and flat sectors will witness good growth in demand. There may be some pressure due to prevailing interest rates, but big ticket projects accounting for a large share of steel consumption would remain largely unaffected.
How are raw material prices likely to behave in the current fiscal?
The currently prevailing prices of coking coal is around $250 to $270 from the historic high of around $350 after the floods in Australia in the beginning of 2011. I expect that the prices will further come down in the coming months. The prices of iron ore have moderated recently on account of weakening of demand in China. Internationally, prices of iron ore will also soften further. Regarding iron ore, I would like to mention that SAIL meets 100% requirement of iron ore from its own captive sources.
How badly will steel companies be hit owing to the mining ban in Karnataka?
The Karnataka mining issue may not affect the industry for long, as the country has sufficient reserves of iron ore. The companies in that area will only face logistical problem in getting ore from other areas of the country. While in short term there may be some issues , in the medium and long term, industry players are likely to enter into the necessary tie-ups and work at their earlier capacity levels.
What is the progress on the capacity expansion? Is the delay in FPO affecting expansion?
The FPO has been put on hold on account of turbulent market conditions and it is not affecting our capex in any way. In order to maintain predominance in the steel sector and to face global competitiveness, SAIL had drawn up a modernisation and expansion plan for its five integrated steel plants and special steels plants including raw material resources and other related facilities.
Out of the total investment of around R72,000 crore, around R62,000 crore has been earmarked towards expansion, value addition/product mix improvement, technological upgradation/modernisation and sustenance schemes of steel plants. Besides, provision of around R10,000 crore has been made towards investment in existing mines and development of new mines. The projects are by and large on schedule and we expect to complete the expansion by 2012-13.
What are company?s fund requirements and with FPO delayed, what are the other routes the company is looking at?
Out of total expenditure of around R72,000 crore the orders worth R54,000 crore have been placed. The actual expenditure incurred so far is about R30,000 crore. Capital expenditure by SAIL on the M&E programme has been progressively increasing and for 2011-12 the budgeted capital expenditure is R14,337 crore.
Our expenditure on expansion is being financed through a judicious mix of internal resources and debt.Our debt equity ratio as on June 30, 2011 was 0.56:1. Our cash reserves stood at around R16,000 crore and our borrowings were around R21,000 crore as on June 30.
When is the JV with Kobe likely to start production?
The company has signed an MoU with Kobe Steel of Japan for using ITmK3 technology developed by Kobe Steel for producing premium grade iron in the form of nuggets using iron ore fines and non-coking coal. The pre-feasibility report for setting up of 0.5 mtpa facility using ITmK3 technology has been prepared and the terms and conditions of the joint venture are being worked out.