JSW Steel posted a robust set of numbers in Q3FY21 backed by a strong recovery in steel demand. Seshagiri Rao MVS, joint MD and group CFO, JSW Steel, told Shubhra Tandon that the financial year 2021-2022 will be far better for the steel industry in India and globally as governments across the world roll out stimulus packages to boost the economy and infuse liquidity in the system. Edited excerpts:
How is the aggregate demand for steel globally and what is the outlook?
Steel demand in 2020 fell by 2.3% or 42 million tonne (mt). The total demand has been 1,725 mt in 2020, which was 1,767 mt in 2019. As far as the rest of the world is concerned, it consumed 114 million less steel in 2020, which is 13.3% lower against 2019. India also contributed to this fall as steel consumption in India stood at 65 mt in the last 9 months of this financial year against 76 mt in the 9 months of FY20, with Covid-19 hitting us in March. However, the outlook for 2021 is positive because of the huge fiscal stimulus by the governments across Europe, the US, Japan, Korea, Russia and China. A part of it is going towards building infrastructure which requires steel. Also, the central banks around the globe are supporting by way of pumping liquidity into the markets. As a result, in 2021, the steel demand is expected to go up by 4% which means 71 mt of incremental demand.
What is the steel demand in China looking like?
As far as China is concerned, it consumed 980 mt in 2020 against 908 mt in 2019, so it consumed 72 mt or 8% more of steel in 2020. This indicates it recovered much faster after the Covid-19 crisis. They could raise the production, there was $550-billion stimulus announced that led to a huge amount of recovery in the economy and steel demand. But China’s demand has began tapering from December. So, the type of development which we have noticed in China is unlikely in 2021. This is why steel demand in China is anticipated to stay flat and not go up more than 980 mt in the coming year.
How is the steel demand in India?
Indian steel consumption is anticipated to be 93 mt at the finish of FY21, which is 7% decrease than final year, whereas in FY22 it is anticipated to develop by 10%, which suggests one more 9-10 mt of incremental demand more than 93 mt taking it to 103-105 mt. If we cross 10%, we will close the next monetary year with 110 mt of steel demand. Most of this will be led by government spending on infrastructure which is driving pretty much 50-60% of incremental demand. Also, automobiles, white goods, bearing and forging business, piping industries, drums and barrels and packaging industries are undertaking effectively in India which is top to larger steel off-taking, and also demand in rural India. Additionally, the mining sector is anticipated to do superior than final year, which suggests demand for industrial automobiles will go up. So, next year would be far superior and we will choose up the demand that we lost final year.
Since JSW Steel’s volumes have been decrease on a year-on-year basis as effectively as sequentially, the sharp improvement in revenues this quarter can be attributed to larger rates?
There have been 4 motives. One is that integration of iron ore has gone up from 26% in the earlier quarter to 49%, so iron ore supplies have gone up. In Q2 we suffered simply because of that. This also led to our capacity utilisation enhancing from 86% in Q2 to 91%, and with that our fixed expense came down. Secondly, our export sales have been 28% of the sales in Q2, when these have come down to 12% simply because as the steel demand picked up in the domestic market place, we focused more right here, altering our geographical mix. Also, the item mix has enhanced. We had 57% of our sales coming in from higher-worth grade steel. This is up from 50% noticed in Q3FY20 and 51% in Q2FY21. The advantage of decrease coal expense also gave the advantage to us, and then also the larger net sales realisation which was a outcome of rates for auto sector having reset in October.
How are the present HRC and CRC rates in India and how considerably have they risen y-o-y and sequentially? How does it evaluate with worldwide rates?
For us, on a blended basis rates went up by 20% sequentially and 26% y-o-y in the final quarter. If you have been to evaluate India rates with worldwide rates, in April-December rates in China went up by 80% from $394 to $710, in the US they have been up 119% from $507 to $1112, in Europe 84% from $438 to $807, whereas in India it went up from Rs 35,000 to Rs 53,000 which is 51%. The cost rise is considerably steeper in other nations. So, when we could not be out of tune with worldwide markets, we haven’t elevated the steel organization in India the way it has gone up globally.
What is the outlook on steel rates for the coming year?
I do not see steel rates going up, but there could not be a massive correction downwards. The motives for that are couple of. The supplies are anticipated to go up from nations like Japan, Korea, Russia, which was not the case in 2020. So, there could be some stress on the pricing. Also, in the final couple of days rates in China have come down by about $30 which corroborates that the Chinese economy is slowing down.
However, from a expense point of view, the coking coal rates went up from $102 to $135 per tonne. Iron ore in December was $159, today, it is $168. So, expense escalations could push steel rates larger. Then there is the aspect of demand, whether or not it will stay robust or not. So far indications are it will stay sturdy, which will drive rates. Also, we do not see the US dollar becoming stronger shortly, so no downward stress on commodity rates anticipated.