In an interview with CNBC-TV18, Mr Seshagiri Rao joint managing director & group CFO of JSW Steel said that company is witnessing consumption, import and production slowdown as compared to same period last year. He attributes the fall in production to reduction in capacity utilisations at steel plants. However, he added that “exports have strengthened 42% on a year on year basis.”
Q - What is the kind of consumption pattern for the industry year to date? What do you make by comparing 2011 consumption to 2010?
A - In the last financial year, which is up to March 2011, both production and consumption were in double digits. The production and consumption stood at 11% plus and 10.8%, respectively. This shows that earlier consumption was quite robust, but we are now seeing some slowdown (starting from April and May), in line with the numbers already available from JPC. Taking in account four important areas, production, consumption, imports and exports, the production crude steel has fallen by 0.7%; whereas consumption rose 1.9%.
Despite the slowdown in numbers, consumption is still in double digits, thus showing some growth relative to last year. However, the import numbers have dropped by 50% ie, 1.7 million tonne of total imports into India. On the contrary, exports have shot 42% relative to April and May month of last year. So exports are going up, imports are coming down and the production is almost at the same level as that of last year; whereas consumption is slightly up relative to last year. Thereby, overall things are okay in the Indian market.
Q - Is this true that there has been quite a weak response to the price hikes that steel companies undertook in May and in that sense the demand elasticity is not there and going forward companies will not have pricing power at all and in fact we may see a bit of a decline also?
A - We have to look at the global steel market if we want to view the pricing scenario in India. The prices started slightly weakening in the last few months, but at the same time the raw material prices which went up quite substantially to USD 300 plus for coking coal and USD 170 to USD 190 for iron ore because of very high raw material prices the steel prices even though they corrected they are stable right now, they are not falling further.
So taking the slight weakness in the market in the domestic markets particularly coupled with monsoon and also internationally lot of production happened in the first five months of the calendar year where the growth in global steel production is 7.8% overall. So in view of that there is some surplus production which is there in the international markets that’s why we are seeing slight weakness in the pricing. So capacity utilisations are coming down overall so production is getting adjusted so therefore the prices going down from current levels, I don’t see much to happen.
Q - We also hear that raw material prices have fallen significantly at least iron ore prices are at 3 month lows we understand, what is the extent to which it actually impacts you since I guess you will be working on contracts?
A - Prices went up to 190 cost and freight to USD 171 today. So I don’t say that the prices have come down very much in iron ore. We can say that they have come down relative to what it was but USD 171 is very much on higher side if you look at the steel pricing. Similarly coking coal, coking coal today is USD 290 spot whereas the long-term prices for the next quarter is close to 314, which I understand is finalized in Europe. So if you take those prices of coal and iron ore I don’t think they have corrected to the extent where we are seeing the pricing pressure on the steel prices.
Q - So net-net for the year what would you expect or even for the next 6 months. How much do you expect in terms of production cuts and what kind of a consumption rate are you factoring in?
A - July to September quarter generally for Asia the sluggishness would be there because of monsoon so therefore I don’t expect a huge consumption turnaround which can happen in this quarter but we are very bullish going forward starting from December quarter that is October to December quarter particularly for India where festive season will start and the consumption will go up and investment cycle will restart hopefully once the interest rates start peaking out in India. So therefore one quarter maybe little difficult because of the monsoons where the sluggishness would prevail otherwise we are very bullish in the following quarters.
Source - CNBC- TV 18
