JSW Steel posted robust earnings in Q3 as revenue increased a sharp 74% on a year-on-year basis. Seshagiri Rao MVS, joint MD, JSW Steel, and group CFO, told FE’s Shubhra Tandon the company expects to add up to 1 million tonne in volumes in the March quarter with capacity stabilising from its Dolvi’s expansion. Edited excerpts:
While steel consumption was up in December on a month-on-month basis, it has been down year-on-year for the quarter. What has impacted it?
The consumption was quite good in December at 9.29 million tonne, and on an annual basis it comes to almost 111 million tonne. However, for the quarter ended December the consumption is 7% lower on a y-o-y basis because the second half of last year was much better compared with this year. The extended monsoons, floods in south India coupled with many holidays in November and the Omicron threat in December impacted consumption.
What is the outlook on consumption in the fourth quarter?
Since the start of January, there has been good traction from the automobile sector. For us, the sales from auto sector rose by 2% on the back of PVs and medium heavy CVs segments doing well. Only tractors, two-wheelers and light CVs are seeing tepid steel offtake. But that also should pick up once the Omicron effects wane.Also, we expect packaging, renewables and appliances sector, which had seen good growth in Q3 to continue their momentum. Continued spending by the government for infrastructure growth will see good consumption in Q4 as well. We are seeing a lot of enquiries coming for pipelines both water and oil & gas, among other segments. Also, with global steel prices falling last quarter, there was an expectation that Indian steel prices will fall. This led to de-stocking at the retail level. However, we expect re-stocking to happen in the March quarter. Also, now that global prices are stabilised and a bit of uptick is seen in the steel prices globally, Q4 should be much better than Q3.
Your Dolvi expansion got completed in November. What can be expected in terms of volume growth?
We are expecting a good growth in volumes as a result of Dolvi expansion completion. Till now, only 1.8 lakh tonne out of 5 million tonne production has come in. As that capacity is fully stabilised now, we will have a good volume growth in the range of 8 lakh to 1 million tonne for JSW Steel in Q4.
What were the reasons for global steel prices to soften, given that they were in the upward trajectory for major part of the year?
July onwards, China had curtailed production as they shifted their focus to decarbonisation, which had a huge impact on domestic demand which fell by 5-7% compared with 2020. However, the surplus steel was exported and Chinese steel exports went up to 66 million tonne in 2021 from 57 million tonne in 2020. This led domestic steel prices in China to fall, which had an impact on the FOB prices there and in entire Asia. Also, due to the impact of Omicron in Europe and the US, economic activity has come down in the last quarter, which impacted prices there.
The share of value-added steel volumes has jumped to 62%. How are you looking at this segment going forward and what are the plans there?
There is good growth in these segments, and at the same time we are doubling our tin-plate capacity to 3.5 lakh tonne. We are adding another 2.25 lakh tonne which will get commissioned by June 2022. Then there is one colour-coating and one galvanising line that is coming in Vasind and Tarapore, and one tin-plate coming at Tarapore. Additionally, one more galvanising and colour-coated line is getting completed at Vijaynagar. So, if I look at the total capacity of downstream products, including Bhushan which is 27 million tonne, this will increase to 36.5 million tonne in the next two years.
What is the outlook on steel prices for the year?
Steel prices globally had fallen and now we are seeing stabilisation. However, for the last three days, we are seeing a slight uptick in the international prices, majorly driven by coking coal. Coking coal prices went up to $445 last week, and iron ore went up to $137 from $125. So, in line with these China FOB steel prices went up from $770 to $790 now. As long as coking coal and iron ore prices remain at the elevated levels, we do not see steel prices coming down.
The company’s debt has gone up in the third quarter…
From October 1, we consolidated Bhushan Power and Steel because of which Rs 7,485 crore got added to the consolidated debt. So, the total debt of `66,312 crore is inclusive of that. However, excluding that, the debt was at Rs 58,827 crore which is up from `55,394 crore as on September-end. So, net-net the debt has gone up by Rs 3,000 crore, which is majorly on account of working capital investments as inventory has gone up by 3 lakh tonne in the last quarter. So, we are trying to reduce that in this quarter and cut our debt.