We are waiting for markets to stabilise to refinance rupee loans

A protracted slowdown in demand from sectors such as auto and real estate is weighing on the steel sector. In addition, the threat of cheaper imports from markets such as China, Korea and Japan continues to add to the pressure being faced by steel companies. Seshagiri Rao, joint managing director & CFO, JSW Steel, spoke to FE?s Ira Dugal and

explained the environment the company faces. Excerpts:

How bad would you say the demand environment is?

Demand remains sluggish. Seasonally, this is a slow quarter, which adds to the challenging demand environment. On the positive side, base demand remains alright. Though flat, it is not negative. Last year, we saw about 3% growth in demand but this year it is slightly lower. To that extent, imports are slowing down, but we still are net importers of steel.

On the domestic side, rural demand and semi- urban demand is alright. We are able to sell 25% of our steel through those channels. The areas where we are seeing a clear slowdown are the real estate and automobile sectors. These are sectors where flat steel is consumed.

Interest rates are also having a negative impact on demand, affecting steel consumption.

Has the rupee depreciation boosted exports or led to any import substitution?

No, I don’t think so. In fact, after the rupee?s depreciation, exports have fallen. The overall global economy is not doing well, so everyone has to look for new markets. At the same time, on the suppliers? side, there continues to be a glut. Even consumption in China is slowing down, so they are also looking for new markets.

Last year, they exported 55 million tonne of steel when they were growing at 7.6%. This year, as their growth will be lower, they will not be able to consume as much. So, in addition to Japan and Korea under the FTA, even China is putting in steel into the Indian market.

On an average, every month 4.5-5 lakh tonne is coming into India, which is quite large and hurts the domestic industry, especially when they sell below their domestic realisations.

Has the government taken note of these concerns?

Yes, and the government has said it will review products where there is negative trade. Now they want to sign an FTA with Europe, which could further negatively impact the sector. The industry has submitted its views to the government. They have seen our presentations. What they do remains to be seen.

What?s the impact of the recent RBI measures on your ability to refinance debt?

The steps taken may have been temporary, but interest rates have gone up. Call rates and bond yields have gone up. CD, CP rates have also gone up. We continue to look for refinancing to reduce our costs. We have 60% of our debt in rupee and 40% in foreign currency loans.

We are looking to refinance the rupee loans, particularly those that were part of the Ispat acquisition. So, we are looking to refinance, but we will wait for the market to stabilise. Earlier, we were thinking we will raise foreign currency loans, but we have put those plans on hold. We were also looking at rupee refinancing, but rupee rates have gone up, so we want some stability in international and local scenarios before we decide.

What is your overall capex plan for the year?

We have a capex plan of R10,500 crore over a period of three years. This applies to only those projects that are under execution.

Has there been any progress on the mining issue in Karnataka? Has mining picked up after the Supreme Court?s decision earlier this year?

There hasn’t been much progress. Most mines have not started functioning yet and availability of iron ore is still an issue, which is the reason why we continue to function at lower capacity utilisation levels.

For most of the mines, permits and clearances have expired since the mines were not operational for a while. These permits and clearances have to be renewed at regular intervals. Now, it’s up to the state government to re-issue permits and that is taking a lot of time.

There are reports that you are on the lookout for acquisitions. The names doing the rounds also include Sandur Manganese. Is that true?

We have denied reports of buying a stake in Sandur Manganese in a notice to the exchange. More broadly, we would be interested in acquiring iron ore mines since we do not have our own mines. So, if the right opportunity comes along, we will definitely be looking at it.