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Last Updated : Oct 01, 2013 04:50 PM IST | Source: CNBC-TV18

Demand up despite price rise, worst over for steel: SAIL

CS Verma, chairman, SAIL, says increase in steel prices were in line with increase in international prices.

CS Verma, chairman, SAIL, expects to see good times for the company as worst seems to be over for the metal industry The company raised steel prices in line with increase in international prices. While flat product prices were raised by about Rs 1500 per tonne, those of long products were increased by about Rs 1000 per tonne in line with hike in international prices to the tune of USD 20 per tonner for flat products and USD 4-5 per tonne for long products.

SAIL's inventory stands at about 0.5 tonne, which would be needed to cater to their vast marketing network of more than 3000 dealers.

He further adds that improvement in China's economic data too was responsible for steel environment improving. "In calendar year 2012, China’s growth in crude steel production was about 2 percent but from January to July 2013 China growth of crude steel production was about 7 percent."

Below is the verbatim transcript of his interview on CNBC-TV18

Q: What kind of price hikes have you taken at SAIL and what are your current inventory levels?

A: From the beginning of the current month, we increased the prices for flat products by about Rs 1500 per tonne and in the long product segment by about Rs 1000 per tonne. This is in line with the international price levels because internationally too the prices have gone up in the last two months by about USD 20 per tonne for flat products and by about USD 4-5 per tonne for long products.

Last four-five months there has been stagnation in price level whereas the input prices have firmed up with passage of time. International iron ore prices which had fallen to a low of about USD 95 per tonne about three-four months back, today they are around USD 140 per tonne.

Even the coking coal prices have firmed up by about USD 10-15 per tonne in the last couple of months. Since the steel prices had been stagnant in last four-five months, this increase has been effected from beginning of the current month.

As far as inventory level is concerned we are holding about 0.5 million tonne of inventory in all our stock yards. Looking at our vast marketing network wherein we have about more than 3000 number of dealers and about 54 warehouses in India. So this inventory level will be needed to cater to our marketing network.

Q: You don't feel the rise in prices has impacted demand in any fashion?

A: No, in fact demand has gone up. I also think the worst is over as far as metal or steel industry in particular is concerned.

To be more data specific, in the year 2012 globally, growth in crude steel production was 0.7 percent at 1.5 billion tonnes. From January to July 2013 of the current calendar year, the growth has gone up from 0.7 percent to 2.1 percent.

Even China growth is coming back. For example in calendar year 2012, China’s growth in crude steel production was about 2 percent but from January to July 2013 China growth of crude steel production is about 7 percent.  India’s growth in crude steel production for the first five months of the current financial year is about 5 percent. So now that worst scenario seems to be over and steel industry being a metal industry and is subject to cyclic movement, I think now there are good times ahead for us.

Q: On rupee depreciation front,  how much it would impact your coal import bill. How much does SAIL import at this point in time and what will happen to the coal import bill now?

A: At present levels of operations, we require about 15-16 million tonne of coking coal every year and we are importing about 11 million tonne of coking coal every year. That means roughly about 1 million tonne of coal we import every month. Now with Re 1 depreciation on annualized basis, we have to take a hit of about Rs 150 crore on annualized basis.

Now there has been a depreciation of rupee by about more than 25 percent compared to the beginning of the financial year. In April 2013 rupee was 53 per dollar, it went to 68/USD, now it is hovering around 62-63/USD.

Q: One report was in the newspapers a while back where the company is aiming to cut costs and save about Rs 5000 crore in the next three years. Can you give us an indication of how that will help your margins because even in the quarter gone by, the margins have dipped quite a bit to about 8 percent versus 13 percent earlier. Do you think you can get back to the double digit level soon?

A: Our margins are still far better to our peers because we remained unimpacted from the happenings of the industry as a whole. We have undertaken a cost cutting drive in a big way and we have drawn up an agenda and we have documented our cost cutting initiatives. In next three years we will be saving about Rs 5000 crore.

This will happen because of the start of our new facilities, which we are adding up in our steel capacity. They are state of the art facilities. So, with optimization of the quality of the raw material, with the proper input mix, with proper procurement cost, and aggressive buying mechanism - all these factors will have cumulative impact of about Rs 5000 crore saving in next three years.

Q: On National Mineral Development Corporation (NMDC) can you clarify on that income tax that was slapped on you - is entirely paid out?

A: Since the matter is sub judice I cannot give you the details but it was only shown as a contingent liability in the balance sheet. The matter which has been picked up by media is from the balance sheet because now we are going to hold our annual general meeting. We have circulated our annual report and we have given a proper disclosure.

I don't expect the contingent liability to become a liability.

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First Published on Sep 17, 2013 01:02 pm
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