The Indian steel sector is in the middle of an upcycle as the demand and production uptick is being witnessed across global markets, and is not restricted to China.
That’s according to Seshagiri Rao, joint managing director of JSW Steel Ltd., who expects a shortage of the alloy, better pricing in the Western hemisphere and opening of the global economy to aid steelmakers in India.
Incremental volumes, change in product mix and lower operating costs will help JSW Steel, he told BloombergQuint’s Niraj Shah in an interview, adding that backward integration and improved profitability would aid the company’s performance in upcoming quarters.
Here are Rao’s comments on key factors:
While demand hasn’t returned to pre-Covid levels, its recovery following lockdowns that ended in July might pick up steam, Rao said. That’s because dealers would start restocking steel to replenish the low inventory levels in the systems, driving factory-gate sales for steelmakers, he said. By the time inventory stocking subsides, which will take a couple of quarters according to Rao, actual demand would have improved, adding to demand impetus in 2021.
On Steel Prices
While global steel prices have risen from $387 a tonne to $625 at present in China on a free-on-board basis, Indian prices haven’t kept pace, Rao said. He expects prices in Asia’s third-largest economy to improve once demand recovers and track their global prices in the future. Indian steel won’t eclipse the price parity, he said, else imports would flood the Indian market.
The full benefit in higher realisations in the quarter ended September for JSW Steel will show up in its third quarter-earnings, Rao said. That apart, price hikes implemented in the third quarter, according to him, and renegotiations with auto companies will reflect in its financials. With large infrastructure projects commencing operations, demand and realisations could stay stable or inch higher in the third quarter itself.
On Input Costs
According to Rao, while iron ore is in short supply and China is importing more iron than in 2019, making it costlier, coking coal prices have fallen with Asia’s largest economy curbing Australian imports and sourcing it elsewhere at twice the price.
Lower coking coal prices will help offset the higher iron ore prices, he said.
Capacity Utilisation, Capex Plans
The steelmaker’s capacity utilisation in India stands at 75-80%. And while iron ore shortage impedes higher production, restoration of supplies will help improve it. That will enable companies to meet increased demand with existing capacity itself, Rao said. JSW Steel’s plans to add capacity of 5 million tonnes per annum will be commissioned in the ongoing financial year, and that should drive volume growth for the company in 2021, he said.