‘Steel demand will see a boom next quarter’

JSW Steel recorded its highest quarterly net profit at ~5,900 crore in the first quarter of this financial year on the back of higher realisations from export and domestic markets. In an interview, SESHAGIRI RAO, joint managing director and group chief financial officer of JSW Steel, tells Ishita Ayan Dutt that the industry is going through a structural shift and demand is very strong globally. In India, post-second wave, there are signs of good recovery in June, he says. Edited excerpts:

JSW recorded its highest quarterly profit on lower volumes. What was the increase in realisations quarteron-quarter (QOQ)?

The QOQ realisation on a blended basis went up by 19 per cent. But it was much higher in global markets; in the US, it went up by 30 per cent, in Europe, by 40 per cent. In China, domestic prices went up by 4 per cent, but export FOB price went up by 14 per cent. So across the world, prices went up. In line with that, Indian prices also went up. But it is still at a discount of 17 per cent to the landed cost of imports.

How sustainable is the price rally?

In the first six months of this calendar year, global crude steel production went up by 126 million tonnes (mt). Out of this, China produced 59 mt more while the rest of the world produced 67 mt more than the corresponding six-month period. Globally, a huge amount of supply has come into the market. Despite that, prices went up by 70 per cent in the US and Europe in the first half; in China, it was up by 30 per cent. There was some marginal correction in July, but in the last one week, we are seeing an uptick. This establishes that demand is strong. Investment in infrastructure by various governments and energy transition is driving steel demand. You will find the same circumstances in India. We are very optimistic about a recovery in steel demand post-second wave of Covid. This quarter is subdued because of intermittent activity in construction and infrastructure segments due to monsoons. I think there will be a boom next quarter.

Companies have lined up capacity expansion after deleveraging. Is that a learning from the last cycle?

Investment is coming in cautiously; it is not happening as it was in the previous cycle. Keeping healthy financials and a healthy balance sheet is a primary driver for any company before committing to future growth.

The pandemic has made bigger players stronger. Will there be room for smaller and secondary players in a capital-intensive sector like steel?

In the Indian market, primary players are mostly in the flat segment; secondary players are on the long side. The difference between hotrolled coil (flat) and TMT (long) in the US is about $1,000 a tonne. There is a huge difference in flat and long steel pricing whether it’s a developing market or developed. Even in this cycle, what has gone up is flat. Secondary producers are affected on account of two reasons: high iron ore cost and working capital availability. Generally, everybody is not doing well in the industry; there are players who are still suffering. That is why iron ore should not be exported; it should be made available to the Indian steel industry .

Is JSW looking to surrender mines in Odisha?

The question of surrendering does not arise. We will bid for mines when they come up for auction.

How have your subsidiaries and jointly controlled companies fared?

Indian subsidiaries have done extremely well. The Ebitda from Indian subsidiaries was ~1,145 crore against ~821 crore in Q4 of last year. So there was a shift of ~325 crore.

The US units contributed operating Ebitda of ~282 crore in this quarter against a ~322-crore loss in the previous quarter. The Indian and overseas subsidiaries together contributed to the swing in consolidated Ebitda numbers. In companies under joint control, Bhushan Power & Steel made a net profit of ~745 crore in Q1, Monnet Ispat ~63 crore. Our proportion of profit from firms under joint control for the quarter stood at ~323 crore.

“WE HAVE AN INTEREST IN BOTH NINL AND NAGARNAR PROJECTS. BUT NEELACHAL JUST OPENED THE DATA ROOM FOR PROSPECTIVE INVESTORS. WE ARE ONE OF THE COMPANIES SHORTLISTED. WE ARE EXAMINING AND WILL TAKE A CALL”

You have been shortlisted for Neelachal Ispat Nigam . Two other inorganic opportunities are coming up in RINL and NMDC’S Nagarnar Steel Plant. Would you look at both?

We have an interest in both NINL and Nagarnar projects. But for now, there is limited information. Neelachal just opened the data room for prospective investors. We are one of the firms shortlisted. We are examining and will take a call. Nagarnar is an interesting project of 3 mt capacity. Nothing has started in RINL. But it has a large land bank and is port-based. It’s a 7 mt facility, which is difficult to create.