Indian steel industry can see good health in 2016
In an interview to ET Now, Ravi Uppal, MD & Group CEO, JSPL, talks about the problems being faced by steel industries and how to overcome these problems. Excerpts:
ET Now: With commodity prices moving back to the original heydays, let us assume the new normal is just about 10-20% above where the current prices are, do you think the companies will be able to claw their way back into good shape in calendar year 2016?
Most certainly. Indian industry in particularly can certainly do it. The only threat has been that the sizeable share of their market has been taken by imports. To just tell you the figures, the imports in the first six months of this year grew by 52%, the domestic demand grew by 4.5%. So anything which resulted in increase of consumption was taken not by domestic producers, the benefit of that has gone to imports. America does what is good for America, Europeans do what is good for them, we as Indians, why should we not try to our industry when the markets are so turbulent and when some of the countries like China which own up nearly 50% of the global capacity they just want to keep their industry growing regardless of what happens to a country like India.
We have everything which we require to make steel, whether it is iron ore, it is coal, lime stone, we have everything that is required. So if the Indian steel industry is not helped, the mining industry, the transport industry would also be severely affected. So we have to see in a larger context that shielding our industry at this moment when the global markets are turbulent, does it serve our national interest? Yes, of course it is. So we need to take a very pragmatic view. Indian steel industry per se is extremely competitive in terms of conversion cost but there are certain other factors which are beyond the Indian steel industry, which actually make it a case of not level playing field. That is what the government has to take cognisance of and make sure that the Indian industry is able to survive through this crisis and it may stage a comeback in the year 2016-2017.
ET Now: We are coming out of a Christmas weekend with the hope and stepping into the New Year with the hope that the things may bring some respite especially for you with regards to what has been happening with the commodity cycle thus far?
Ravi Uppal: Yes I have the same hope that the New Year will bring new cheer to the industry. The 2015-2016 calendar year has been very difficult for the oil as well as the non-oil commodities worldwide. The prices have touched all time low but I do think that the next year will bring some cheer. In the last seven years we have seen two business cycles. We first saw a market crash saw in the start of 2008 but the recovery was very fast, but this time around the business cycle it nosedived and the recovery has been slower. The difference between 2008 and 2015-2016 is that at that time the recovery was driven by the Chinese demand, China was growing at 10 to 11% and they had a huge demand for the commodities.
his time around the Chinese demand does not seem to stage a comeback, to the contrary their own domestic consumption has come down, so that is what has made the recovery more difficult. When it comes to the oil sector, the prices of the Shale gas continue to go lower. Last week it was trading at $1.75 per btmu and that obviously is creating a crisis for the oil industry. So this cycle recovery is going to be slower but it is definitely going to be there. I am personally of the view that commodities in India can recover much faster compared to the global markets. The reason being that our own demand is pretty high and if the government and the industry can work together in close cooperation, I am sure that the days ahead will be good for the recovery of the Indian steel industry.
ET Now: What convinces you the demand will comeback because it has been a fairly tough year and part of the problem lies with slowdown in demand and there being excess capacity aside of that with this significant fall in steel prices, the input cost have also fallen significantly. Iron ore prices have fallen more than 40%, so how do you balance the situation going forward?
Ravi Uppal: We have to distinguish between what is the pattern of growth or consumption and who is supplying to that consumption. If you look at the first six months of this financial year or nine months of the calendar year, the demand has risen by 4.5%. The question is who was catering to this additional demand. Is it domestic industry or it is through imports. The answer is, a lot of this demand was cater to by importer steel from various countries especially China, Korea, and Japan, which were dumping their material into the market.
So if we can do some kind of ring fencing over the Indian industry against the reckless of dumping done by foreign companies, the Indian industry can still grow at a decent rate. Now a lot of projects are taken off like in Indian railways, the road sector, the construction sector. All of them have started to grow off a bit, all of them point to the fact that the growth may not be a bumper growth but if there will be a modest growth even in the year 2016-2017. So we are quite happy that even if the Indian industry can grow at 6% to 7% that EBIT translate into additional demand of 4 to 5 million tonnes of steel which augurs well for the Indian steel industry. We got to make sure that we do not have reckless dumping done by the foreign producers which is precisely what created the crisis.
The other issue that you mentioned about the dropping price of iron ore that basically translates into lower cost of steel. Prices have fallen, the cost of production has fallen, so idea is to make sure that the fall in prices is at least in line with the cost of production, so that the Indian steel industries are not making cash losses or they are able to at least have a reasonable profit to sustain their operations. You got to remember that the Indian steel industry in the last five years have put a huge amount of investment to ramp up their capacity. We have added something like 30 million tonnes of capacity in the last five years and how did this capacity come about is by borrowing from the financial institutions, so they are over leveraged right now and they need time to recover, get their act back together and they deserve it. Indian steel industry is a part of India steel story and India is all set to become world second largest producer, we need to support the industry in achieving that.