Supply side constraints in China have caused spike in lead prices, says Naveen Sharma, CEO of Gravita India.
Speaking to CNBC-TV18, he said informal scrap trade to be converted formal going forward.
Below is the verbatim transcript of Naveen Sharma's interview to Reema Tendulkar & Prashant Nair.
Prashant: Could you talk to us about what the impact of commodity prices especially lead hitting five year high has been on your business. I understand you use scrap and convert that into other premium products. Could you talk to us about that?
A: The lead prices which have suddenly shot up in the last two months and particularly in the last one week or ten days. The major reason is the demand from the Chinese market because there are a lot of supply side reforms going in China where they have closed a few of the mines because of some safety issues and add to that because of heavy winters there is a shortage of mine products from Chinese mine. Therefore, now they are more dependent on import and that effect is taking place, they are demanding more of concentrate and lead bearing material for import. So that has suddenly spiked the price for more than 15 percent.
As far as our recycling business, we are able to utilise our capacity better because of getting these orders because there is an arbitrage, whenever we buy scrap and the selling price, the scrap doesn't go in tandem to the price increase for the finished goods. So that is positively impacting our business and we are able to book export order more in the last one month and in the coming period.
Reema: Is 100 percent of your business, does it involve using scrap lead prices or is there also an element which uses lead prices, the raw material where we have seen an increase of nearly 15 percent in the last one month which could adversely or negatively impact the company's financials?
A: Hundred percent of our production is from scrap. We are 100 percent scrap dependent.
Reema: You said lead prices have gone up by 15 percent?
A: Yes, the overall increase is more than that but by talk about recent terms in last seven-ten days its 15 percent otherwise it has gone more than that, its 30 percent in the last two-three months.
Reema: What about scrap prices. How much have they gone up by in the last three months, like-to-like?
A: The immediate impact of last ten days, we consider that 15 percent increase has only passed 3 percent in the scrap but previous increase of another 15 percent, so that 10-12 percent has been passed on but the current effect of last two weeks has not been passed because people keep watching the prices, there is some volatility as well but this will slowly be passed in time to come. However, currently only 30 percent has been passed to the scrap prices.
Prashant: How much is export and how much is local sales for you?
A: If we talk about till year-to-date, we have done almost 70 percent as export, 30 percent domestic but in current scenario about 80-85 percent is export.
For entire interview, watch accompanying videos.