On July 22, the Cabinet approved a Rs 6,322-crore PLI scheme to boost domestic output of high-grade speciality steel, which accounted for 60% of India’s imports of the metal last fiscal and brightens the prospects of the local industry that primarily operates at the lower end of the value chain.
JSW Steel’s plans to set up a grain-oriented electrical steel sheet manufacturing facility will get a fillip with the production-linked incentive (PLI) scheme announced by the government in the speciality steel sector last week.
JSW Steel said in May that it had signed a memorandum of understanding to conduct a feasibility study with JFE Steel Corporation, a strategic alliance partner, to establish a grain-oriented electrical steel sheet manufacturing and sales joint venture company in India.
Speaking to FE, Seshagiri Rao, joint managing director, JSW Steel and Group CFO, said this JV will come under PLI and the scheme will boost the momentum. “Feasibility study is currently on and we will take a call shortly, and we think the PLI scheme will help us to do it. We are currently working out the potential demand and is the kind of investment required, how to structure it etc, which we should finalise by the end of this calendar year,” he said.
Rao said that the PLI scheme is “well-structured and thought out” in the way certain categories of products have been identified for incentives based on either they are imported or not produced in India, but have a large potential for manufacturing in the country. “It is very progressive the way they have structured the incentive percentages. The products which are particularly capital intensive, technology-oriented and are not produced in India at all are under the maximum amount of incentive like the electrical steel, which has been earmarked for 12% incentive, while low-end has been provided only 4% incentive,” he said.
On July 22, the Cabinet approved a Rs 6,322-crore PLI scheme to boost domestic output of high-grade speciality steel, which accounted for 60% of India’s imports of the metal last fiscal and brightens the prospects of the local industry that primarily operates at the lower end of the value chain. Under the scheme, to be implemented between FY24 and FY28, eligible manufacturers will get incentives in the range of 4-12% on incremental production. However, the benefit will be capped at a maximum of Rs 200 crore per group per year, which will prevent the cornering of a substantial chunk of incentives by any large industrial group.
JSW Steel’s speciality steel and value-added steel together form 61% of the company’s consolidated sales as of the recently ended June quarter. The share has grown significantly from 38% in June ended quarter last year. However, according to Rao, the share will remain at these levels as the company’s overall capacity is also set to increase.
According to the company, the steadily increasing demand for electric power, the growing adoption of renewable energy and the electrification of automobiles, there is a continued growth forecasted for grain-oriented electrical steel sheets primarily used in transformers in India and globally.
Speciality steel is value-added steel wherein normal finished steel is worked upon by way of coating, plating, heat treatment, etc to convert it into high value-added steel which can be used in various strategic applications like defence, space, power, apart from the automobile sector and specialised capital goods etc.
According to a CARE Ratings report, India was the second-largest producer of steel in the world in FY21 but out of the total 102 million tonnes of steel production, only 18 million tonnes were value-added or speciality steel.
Out of the 6.7 million tonnes of finished steel imports in FY21, nearly 4 million tonnes import was of speciality steel alone, resulting in a forex outgo of about Rs 30,000 crore. Alloy and stainless steel contribute disproportionately to the import bill by value, as imports were mainly of high-grade alloy steel along with speciality steel.
Meanwhile, Rao said that the steel prices, which are at a multi-year high are not expected to fall significantly during FY22, given the strong demand for the metal globally. However, margins may get corrected due to high costs coming in from refractories, ferroalloys, electrodes, iron ore and coking coal, and the company will feel the cost pressures in at least the coming two quarters.
However, JSW Steel’s overseas operations have made a turnaround after the revamping exercise, and strong demand and prices in the US are expected to hold on and contribute to further growth. The company’s US operations made $34 million Ebitda for the first time after long in the April-June 2021 period, and the overseas operations contributed Rs 282 crore to consolidated Ebitda against a loss of Rs 322 crore last year.
JSW Steel reported its highest-ever consolidated quarterly net profit of Rs 5,900 crore for the quarter ended June, while revenue from operations more than doubled to a record high of Rs 28,902 crore during the quarter. The Ebitda (earnings before interest, tax, depreciation and amortisation) was also the highest-ever at Rs 10,274 crore, with operating margins coming in at 35.5%.