New product mix saved cuts in production: Uttam Galva

Uttam Galva's volumes this year are to be flat year-on-year and though the company is attempting to target a 10-15% increase, Miglani is not very optimistic.

Below is an edited transcript of the interview. Also watch the accompanying videos.

Q: The resumption of  production of ore from Karnataka has come as a big relief. Since you source some of your HRCs (hot-rolled coils) from Ispat, has the company indicated of being able to increase supply?

A: We haven't had any explicit discussions, but clearly, production levels have been lower from two of our biggest suppliers - JSW Ispat and Essar Steel . Obviously, once the supply of ore opens up, the availability of HRC will increase as well and that should make life a bit easier for us.

Q: Were you constrained in the past few months due to availability?

A: Certainly. Since the ban on mining, our imports of hot coil have actually doubled on restrained local supply. So we will now begin to phase-out and switch back to the domestic raw material supply chain and lessen imports.

Q: Does that impact margins?

A: No, it doesn't impact margins. It’s just that we had to readjust our strategy accordingly. Due to the restrictions on iron ore, domestic prices were higher than the global prices, which is why we were forced to import. We believe now that things are beginning to open up. Gradually the prices will rationalise to global levels.

Q: Since the landed price did have some bearing on domestic prices when the ban was in force, would you expect a slight drop in raw material prices?

A: Global steel prices have dropped by about USD 75 over the past four to six weeks. The only reason Indian prices have been holding up is because of the weakness of the rupee.

Iron ore prices, on the other hand, have been artificially high in the domestic market and this has strained the conversion cost for steel. We think that the price of iron ore will rationalise much more significantly than the price of finished steel over the next couple of months.

Q: Is the increase in imports only due to domestic problems or is it indicative of a long-term trend?

A: It is not a long-term trend. Imports went up because domestic supply was restrained and affected by irrational prices. To maintain production levels, the steel industry was forced to import.

Q: How is the demand for finished products?

A: There has been significant drop in local and global consumption. The scenario is much worse than the previous quarter as all our auto customers have indicated lower tonnages on either cuts in production or large inventory. The situation is similar from the white goods segment to the construction sector and in the global and domestic markets.

Q: Do you think the market is bottoming out or will it take some time to correct?

A: I don't believe it. The impact in China is due to a cut in interest rates which will not alleviate the situation to a large extent. Though they are spending a lot of money on infrastructure, the private construction sector is much slacker than before and is eating away all the stimulus from the infrastructure spending.