JSW Steel reported a strong set of numbers with the best-ever earnings before interest, tax and depreciation on the back of an unprecedented rise in steel prices and healthy margin. The company’s joint managing director and group CFO Seshagiri Rao, however, tells the author that further rise in prices is unlikely even as the fourth quarter will be even better. He also does not expect the budget to lower the import duty on steel. An excerpt:

Steel industry and JSW in particular posted great numbers in the third quarter. Is it sustainable?

Well, there are four aspects to it: demand sustainability, supply improvement, prices and margin.
Demand: I’m confident about demand sustainability. Seeing the month-on-month improvement from April, I don’t accept it is just pent-up demand. From 1 million tonnes (mt) in April, it went up to 10.28mt in December, which is 19 per cent higher year-on-year (y-o-y), and the highest in a single month. Large infrastructures that were held up started; auto remained robust — our sales went up 57 per cent year-on-year; retail, packaging, pipe also showed growth. We believe it will pick up further.

India consumed 68mt steel in the first nine months, including 28mt in the third quarter alone. Assuming the fourth quarter to be the same, India will consume 93mt, a fall of 7 per cent over the last fiscal, much lower than 17-18 per cent initially apprehended. We believe in the next year 10-12 per cent growth is possible.
Supply: India’s installed capacity is 142mt. In Q3, we had 76 per cent capacity utilisation. Next year, about 5mt will come from JSW, then there is NMDC plant and SAIL’s expansion. All put together, the incremental capacity will come next year. Supply side will not drive steel prices in the next year.

Iron ore prices went up 146 per cent from June to January in the international market. In India, the rise is higher, mainly because of a drop of 46mt in production in the first nine months. Coking coal prices, which went down to $104 a tonne, has gone up to $135 in the last four days, because countries other than China have now recovered. So, cost pressure is high, demand is strong and supply is increasing. So, I’m not seeing further upside in steel prices, nor apprehending any crash.

What happens to the margin then?

With cost pressure and price upsides capped, margin may be impacted unless a company takes specific measures to cut costs.

Would you say the third quarter was the best steel companies had?

No, Q4 will be even better. Majority of the raw material (coking coal) is bought for the quarter. Long-term steel contract for the quarter is closed. So, the impact of raw material prices or steel prices may not come in this quarter. The impact of the entire price increase of the last quarter will come in this quarter.

JSW had capacity utilisation of 91 per cent in Q3. Can that be scaled up?

After we got control of the railway siding in Odisha mid quarter, iron ore supply from our mine has improved. It is now meeting 49 per cent of the requirement. We already operated at 94 per cent in December.

There is much noise around steel prices already high. Do you apprehend budget taking steps?

The noise has no substance. It depends on business practices. Some companies take fixed price contracts while some work on spot prices. So, when prices crashed, they (who took spot) enjoyed it. Now if it is high, they should not complain. In fact, our net sales realisation is lower than spot prices because of these long-term contracts. I also don’t see demand weakening, leading to price correction.

Do you apprehend any tinkering with import duty?

Well, 60 per cent imports are happening at zero per cent duties from Japan, Korea, anyway. The government is aware that prices have gone up everywhere. In China, it has gone up 80 per cent since April, 119 per cent in the US and 84 per cent in Europe compared with 51 per cent in India. So, it is expensive to import. The steel industry lost Rs 6,000 crore in net profit in the first quarter. The government has all the data.

Let me turn to the company. JSW said travel and visa restrictions are affecting Dolvi expansion. Can you explain?

Equipment is imported from Europe, Asia or China. Suppliers give guarantee that they will be present at the stage of commission and guide us. Foreigners who were with us had left due to Covid. Now they are unable to come for not getting a visa. We are at a critical stage now in commissioning. There are issues with the melt shop and coke oven. We will begin individual units but integrated operation will start in Q1 of next fiscal, a delay of a few weeks. About 80 per cent of all our planned capex will be completed by March 31.

JSW took board approval for $1 billion from the overseas markets. What is your guidance on debt?

Our net debt will not go up from the present level, it may come down by the end of fiscal, provided Bhushan Power acquisition does not happen. Coming to bonds, two important changes took place in India. There is a large borrower prudential limit prescribed by the RBI and also the bank's own ability to lend, they are focusing on retail. These prompted Indian corporate to diversify the source of funding, rely on the international market. JSW raised $2.6 billion through bonds in the last 5-6 years with different tenure. This time we want to go to the US market which will be cost effective and also give longer tenure.

JSW is bidding for Uttam Galva and Gontermann-peipers. Can you give us an update?

UGSL is a downstream unit, JSW used to supply a lot of materials to it. We are showing interest in downstream units, because we have additional upstream capacity coming up. We have submitted expressions of interest but not taken a call. GPI is strategic not only to JSW but to India, because they make steel rolls. China killed the companies by dumping in India. Reviving the company is important.

JSW appears to be taking many ESG initiatives. Your take:

We have been doing it for a long time but didn’t talk. Brought environment friendly Corex technology to India, planted a million tree in Vijaynagar, taken initiative on carbon emission, solid waste management. All these resulted in CDP, which evaluates environmental impact, upgrading us to A- (leadership level). Now we have set targets in line with the Paris Climate Change accord and so far doing better. JSW will give a quarterly update on how it is moving.