Rhik Khundu
With no pick up in investment cycle, demand for steel remains subdued making it tough to pass on price hikes, according to Steel Authority of India chairman CS Verma. He, however, does not expect any hit on the company?s margins due to a weaker rupee as prices of imported inputs have also softened in the recent weeks. In an email interaction with Rhik Khundu, Verma said the company continues to search for coal assets overseas and said discussions are at an advanced stage in some cases.Edited excerpts:
How will the depreciation in the rupee impact SAIL?s business? Will there be a hit on the margins if you can?t pass on price hikes due to the weak demand scenario?
Normally, a depreciation in Indian currency leads to an increase in finished steel prices in our home market, since a major determinant of the domestic prices is the landed prices of imports. However, due to slowdown in demand, the domestic prices are expected to remain subdued/ stable in the near future.
On the other hand, depressed demand for steel, globally, has also led to low demand for major inputs like coking coal and iron ore. Compared with coking coal prices prevailing at $170/t FOB Australia for April-June, 2013, the current prices have declined to $140/tonne FOB Australia. The fall in prices of coking coal has, to a large extent, taken care of the depreciation in Indian currency and, therefore, may not adversely impact SAIL?s profitability.
As a way to deal with the challenges, SAIL is trying to reduce the cost of production and at the same time improve the product-mix for better average sales realisation. The company is also focusing on increasing production and sales volume so as to lower the cost and achieve higher contribution.
What is the trend in terms of iron ore prices and what will be the impact of these price movements on SAIL?
Domestic steel prices, today, are function of domestic demand trends, global steel prices, currency valuation etc., along with price trends of major steel making raw materials like coking coal and iron ore. Since SAIL is self-sufficient for its iron ore requirements, any change in FE Parity or market prices of iron ore shall not influence the profitability of SAIL.
Is SAIL making provisions for a 15% wage hike? Is there a risk of higher than expected wage hikes?
SAIL has already provided for the expected increase in wages, assuming a wage hike of up to 15%. Since wage negotiations are still on, it would not be prudent to comment on the final wages that would be determined as a result of the negotiations.
Can you give us an insight into your plans for modernisation and expansion? How much will you be investing?
SAIL is in the process of implementing a modernisation and expansion plan valued at about R72,000 crore, which covers various areas. While R39,131 crore is being spent on expansion of existing capacity, R7,039 crore is earmarked for value-addition and product-mix improvement, R3,509 crore on technological upgradation, R12,191 crore on sustenance including debottlenecking, AMR & environment and R10,264 crore on augmenting raw material from existing mines and development of new mines
We have a capex plan of R11,500 crore for FY14, of which R10,890 crore is for the five integrated steel plants, and R610 crore for other SAIL plants and units. In the current month , we will start operating the largest blast furnace in India, which is at Rourkela steel plant .
It may be noted that during the 11th Five Year Plan, which ended in FY12, SAIL has invested R40,321 crore on its various modernisation and expansion schemes. Similarly for the 12th Five Year Plan , we have a plan to step up our investment level to R45,000 crore.
What are the coal mines outside India that SAIL, through ICVL (International Coal Ventures) is also looking at acquiring? ICVL is reportedly conducting due-diligence on three to four mines in Australia, the US and Mozambique. Can you elaborate?
In its incessant efforts for acquisition of coal assets in overseas territories, SAIL through its JV company ICVL, is actively scouting for coal assets in target countries such as Australia, New Zealand, Mozambique, Indonesia, Canada and the US.
It regularly examines all such proposals for their suitability in our steel plant?s system.
Currently a number of proposals are under active consideration of ICVL in Australia, US and Mozambique. In some cases, ICVL is in a fairly advanced stage of due-diligence. The results are awaited for taking appropriate decisions in the matter.
