It has been a tough quarter led primarily by the fall in steel prices. What were the average realisations?
Average realisations year on year come down by 8%. The fall in prices in steel is in line with what is happening globally. In the first half of the calendar year, in the US, the steel prices fell by 30%.
Similarly in China, Europe, it fell by 5% to 10%. So the fall in Indian prices are exactly in line with what is happening globally. The realisations were lower by 8% year on year and quarter on quarter more or less. We could maintain the same NSR (net sales realisation) because of the change in product mix.
You have noted that India has seen weak activity with auto as well as construction-infrastructure slowdown. Would Indian steel prices stay low for some time?Indian steel prices have already seen the bottom. That is what is happening globally because iron ore prices went up this year.
Globally in the first half of the year, steel prices went up by 70% and for the quarter it went up by 38%, at a time when steel prices were falling. I do not expect the situation to continue. That is why we are seeing a lot of supply side adjustments. Some European companies announced production cuts.
The same thing happened in the USA and even in China we have seen some production cuts. Once supply side adjustment starts happening, even though demand is slightly weak, we expect steel prices not to fall further.
China has ruled out blanket winter curbs this time around. Could this prove to be a headwind to steel prices?
What is interesting as regards to China? Even though production went up close to 10% this year, their exports are not going up.
The exports remained at the same level as that of last year or slightly lower. This clearly indicates that the domestic demand is quite strong within China, they are able to absorb even the incremental production that is happening over last year.
Despite the highest ever production by China in May 2019 — 89 million ton — exports have not increased. So the stimulus which the Chinese government has announced for infrastructure projects is keeping the demand remain within China. That is a comforting factor for the global steel industry.
Do you think the coming quarters should see steel demand in India pick up and your own volumes pick up as well?We have given the guidance of 16.95 million ton production in this year and we are exactly on track. As regards to volume of sales, we were supposed to do four million ton in Q1, whereas we have done 3.75 million ton.
So, there is a 250,000 ton shortfall. We are confident that we will be able to make it up in the following quarters. This confidence is stemming from the fact that last year also the entire steel demand was driven by government expenditure which slowed down in the first half of this year.
Now with a stable government in place, a new budget approved, a lot of money should come into the infrastructure sector that would bring back the steel demand. At the same time, the credit availability to the industry should get revived.
Both these factors caused the weakness in steel demand to get corrected and the demand pick up in the second half of this financial year.
How are iron ore prices trending this quarter and what is the percentage that has been catered to via your captive mines?
Iron ore prices in India also went up by 10% while global iron ore prices also went up. We have a total of six mines secured in the category C mines auction. Out of that, four mines became operational and our plan this year is to get around 4.5 to 5 million tonne from our captive sources to meet our requirement in Karnataka.
That will reduce our cost and enable us to source capital. We are also participating in more auctions which happened in Karnataka very recently.
In that, we could get three mines and those also become operational next year. With that our captive sources of iron ore will go up by almost 35% at the current allowed capacity.
How has JSW Steel managed to stay insulated from all the allegations of fraud at the newly acquired Bhushan Power?
We are a successful bidder. Our evaluation plan has been submitted to NCLT for approval. In the meantime, whatever news items that is coming about the developments in Bhushan Power & Steel, we approached the NCLT for specific immunity from any other issues that may come up because of these developments.
We are eagerly waiting for that. Once the judgement comes in the way we are expecting, we will go ahead.
You have also resolved to turn around Monnet Ispat in two years. What is the plan there?
Yes, we will be able to do in two years. Two years will be over in next year September. By that time, we will be able to operate this unit on an integrated basis and complete the project. We would be able to operate from September 2020 at its full capacity.
The board has approved about $1 billion in fund raising. Will that be used towards the ongoing brownfield expansion?
Yes. we have a large capex programme. If, at all, we decide to go ahead with the raising of funding either in India or overseas, that will be used for our capex programme.
Steel makers are against expanding the ambit of FTA countries. What are your concerns?
India has earlier signed FTA with almost 12 countries. But the experience in the last eight to nine years is that these FTA countries, have got many advantages relative to India.
We are not able to increase our exports to those countries but at the same time our trade deficit has widened with those countries. We have not got any benefit at all.
If I look at Q1 which just completed, the FTA countries have dumped steel into India at zero percent duty which constitute 66% of the total imports. If we sign an FTA with China, which is in fact becoming surplus steel producer and they start putting steel at zero percent duty into India, it can hugely damage the Indian steel industry.
That is why we are requesting not to sign RCP, RCEP and even if it is signed, to exclude steel as otherwise we will face similar problems as we are facing today with the FTA countries including Japan and Korea.