The steel industry is reflecting the general sentiments of slowdown in the economy. Persistent weakness in demand from key end-user industries has kept the domestic steel consumption growth at a meagre 0.7% in 2013. This has impacted all steel players, with the country?s largest producer Sail reporting a consistent drop in bottom lines for last few quarters. Talking to Prashant Mukherjee and Subhash Narayan of FE, Sail chairman CS Verma said he expects a pick-up in demand in the fiscal 2014-15. Excerpts:

The steel industry has seen flat market conditions in most of 2013-14. What is your assessment of demand-supply in the coming months?

The World Steel Association has projected India?s steel demand to grow by 5.6% in 2014. The 12th Five-Year Plan has set aside $1 trillion investment, equivalent to 10% of GDP, on infrastructure. This will continue to spur steel demand in India. We are adding enough capacities to meet the country?s Vision 2025 requirement of 300 million tonnes.

Why Sail has faced pressure on margins amidst a massive expansion and modernisation plan of R72,000 crore?

We have to realise that the economic environment around the globe is still on the path of recovery. No company is now making the level of margins that they used to make earlier. Several big companies, including ArcelorMittal, are in serious losses. But we have weathered the storm and are performing above industry average. Going ahead, we expect to further improve our performance.

We have so far spent R52,000 crore towards the modernisation and expansion plan and are currently servicing interest on a R22,000-crore debt. Once integrated commissioning of new capacity happens over the next one-and-a-half years and our production levels go up, thus, bringing down the cost per tonne of steel, we can improve upon the margins and report better financial numbers.

Doesn?t companies need to innovate to survive in the market?

Innovation will hold the key to growth. We at Sail are now focussing more on production of value-added steel products to increase our revenue and margins. Products like beam mills, parallel flange beams, channels and many more will be added to the Sail product basket. We will also increase revenue generation through value added products from the current 37% to 55% by the end of this fiscal.

Is there any ore pelletisation plan to make such value added products available for the steel industry?

India had about 36 iron-ore pelletisation plants operated by steel companies. According to the Pellet Manufacturers Association of India (PMAI), the government had encouraged investments in beneficiation and pelletisation plants by reducing the customs duty on pellets from 7.5% to 2.5% in the 2011-12 budget. This was aimed at using low-grade iron-ore fines that had no takers. We are in the process of setting up nine million tonnes per annum of pellet making capacity in the next three-four years. We plan to set up four pelletisation plants. For the Gua 4 mtpa pellet plant, we have completed the tendering process. It is at an advanced stage of processing for placement of order. In Rourkela, we will be setting up a 2 mt pellet plant, a similar capacity is planned for Bokaro, and a 1mt pellet plant at Dalli, where feasibility report and tender documents are under finalisation.

How is Sail?s capacity expansion programme progressing?

Sail has undertaken modernisation and expansion at its five integrated steel plants at Bhilai (Chhattisgarh), Bokaro (Jharkhand), Rourkela (Orissa), Durgapur and Burnpur (both West Bengal) and a special steel plant at Salem (Tamil Nadu) to enhance its crude steel production capacity from 12.8 mtpa to 21.4 mtpa in the current phase. Until now, packages worth R14,000 crore have been operational in different plants and units. The indicative investment for the current phase is R61,870 crore. Besides, a provision of R10,264 crore has been made towards investment in existing mines and development of the Rowghat mine. Orders worth R58,911 crore have already been placed till January this year. A cumulative expenditure of R51,030 has been incurred till December, out of which R6,917 crore is for the financial year 2013-14.

What is the progress in your proposed joint venture with Japan?s Kobe for manufacturing iron nuggets?

We expect to start work on building infrastructure for the special steel project in the next five-to-six months? time. We have already set up a 50:50 joint venture for the new project. Kobe has just set up its first plant for nuggets in the US, which got a bit delayed over some technical issues pertaining to ramping up production. Those have now been resolved and we expect to start work on our project soon.