JSW Steel hikes prices, says demand to surge from Sept

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JSW Steel hikes prices, says demand to surge from Sept

Owing to higher international prices and input costs, steel makers across the board are raising rates. JSW Steel, a major producer of the product too has hiked prices by 3-4% with effect from September 1 and Joint Managing Director and Group Chief Financial Officer Seshagiri Rao says it is expected to rise further.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See latest News about JSW Steel See previous management interviews See what other Experts & Brokerages are saying about JSW Steel JSW Steel BSE | NSE 31/05/12 Are Mutual Funds betting on JSW Steel?

Owing to higher international prices and input costs, steel makers across the board are raising rates. JSW Steel , a major producer of the product too has hiked prices by 3-4% with effect from September 1 and Joint Managing Director and Group Chief Financial Officer Seshagiri Rao says it is expected to rise further.

"The hike is in order to make up for raw material prices," Rao says adding that though the demand for steel from auto and construction sector has been strong, its production has dropped drastically since June. "The demand, both locally and globally will start picking up by September this year," he adds.

He further states that iron ore rates however will be lower this quarter.

Below is the verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Anuj Singhal. Also watch the accompanying video.

Q: After this price hike, are the prices now in level with landed prices or do you see some more scope for steel prices to go up from here?

A: Steel prices have really fallen from May 2010 to August 2010. The fall in prices of steel in the international markets is more than 20%. So, they were at a peak at USD 770 per tonne and they came down to USD 600 per tonne.

The international prices started going up. The raw material prices have not come down. In fact they have gone up during this period, particularly long-term quarterly pricing. The spot prices also have not fallen in the same proportion.

If you see the pricing for the next quarter, for both coal and iron ore, they are still at a higher level than what it was in the month of May. Taking that into account and also lower steel production, which has happened, in the last few months and the destocking, which has happened, now we are seeing a slight improvement in the international prices. So, accordingly we gave adjusted very-very marginally in the domestic market.

Going forward, further downside is not there because of the cost pressure we expect the prices to look up. Also, demand will come back once monsoon is over, starting form October onwards.

Q: Would you meet with demand resistance? Wouldn't there be under cutting by importing companies considering that the world is still looking at a situation where there is excess capacity of supply over demand in the steel sector? Will you meet with demand resistance?

A: If we see the kind of production numbers, which has been released for the month of July worldwide, the production has come down to 114.5 million tonne from the peak of 124 million tonne, which we have seen in the month of May. That translates to 117 million tonne on an annualised basis, lower production across the world. So, at these price levels, marginal cost producers are not able to continue the production internationally.

Even China has shown a significant lower production in the month of July, which is almost 4 million tonne lower, than what it was in the month of May. So, what it will indicate is that the marginal cost producers are out of the business. They are not able to produce, so the production adjustment is happening quite faster relative to the lower demand based on the economic scenario in the international markets.

In that context, if you see the Indian markets, India is doing quite well, particularly the manufacturing and also consumer durables, auto sector. The demand from these sectors for the steel is quite robust. At the same time, the infrastructure, construction, real estate are expected to pick up starting from October. The Indian domestic steel prices are tracking international prices. Therefore, I do not think we need to be concerned about either imports and at the same time domestic demand is concerned both together we expect a very good outlook for the domestic steel industry.

Q: Volumes were quite muted in Q1 and from Q2 onwards expect the base effect to catch up, so in that sense how do you see volumes growth panning out in FY11? What has been the trend in Q2?

A: In Q1, majorly it is account of destocking for the user level that has caused some inventory accretion at the producer's level. But we are seeing an improvement in Q2 over Q1 in the Indian environment. That is the same situation internationally where the inventory levels come down relative to what the market was in Q1.