Govt's $1 trn budget on infra to boost steel demand: SAIL

Steel companies had a tough time in 2012 on muted demand scenario. However, markets have started improving of late, believes CS Verma, chairman, SAIL.

In an interview to CNBC-TV18, Verma said that in the year-to-date period global crude steel production has gone upto 2.1 percent from 1.2 percent in preceding year, indicating likely growth in the sector.  
"In India also growth over 3 percent and will grow more as the government is likely to spend USD one trillion in the 12th five year plan (2013-2017) in various sectors. And this would further boost demand," said Verma. Read This: Expect SAIL to complete divestment by FY13: CS Verma Below is the edited transcipt of his interview with CNBC-TV18: Q: What kind of pressure do you see on steel demand and therefore on steep prices in India? A: No, I am of the view that markets have started improving off late. If we see the data, it suggests that in the year 2012 as a whole the growth in global crude steel production was 1.2 percent but the data we have with us suggests that from January-May 2013 during the first 5 months of the current calendar year, the growth has been 2.1 percent. So from 1.2 percent for the 12 months in the year 2012, the growth has become now 2.1 percent that is the global scenario. In India also during the first 5 months the growth in the crude steel production is more than 3 percent, it is 3.5 percent so see the things have started picking up and specially in India when the government is going to spend USD 1 trillion in the 12th 5 year plan on the various sectors of the infrastructure in the Indian economy, this is going to boost up the demand. This is 10 percent of gross domestic product (GDP) being spent of the infrastructure which has never happened in the history of India. Even if you see, in the 11th 5 year plan also about USD 512 billion was the envisaged expenditure and the achievement level was about 75-80 percent. Another factor in India is its location. With the monsoon setting in, the demand will pick up. Post monsoon again the sales will pick up. All these factors give me a very positive level of optimism that demand is going to pick up in India in the months to come. Q: Can you tell us if there are any positives on the rupee being at 61/USD today? Can you quantify the impact it can have on realizations because the competition from landed steel prices should be that much less? A: Yes, this is impacting every importer in India and our company Steel Authority of India Ltd cannot remain insulated from this depreciating rupee because above 75-80 percent of the coal requirement of SAIL is fulfilled through the imports. We are importing about 10-11 million tonne of coal every year. We import about 1 million tonne of coal every month. In fact in the current financial year, between April and early June, the rupee has depreciated over 12 percent. Last 3 years, the depreciation in rupee has been more than 30-35 percent. So rupee depreciation as a whole will impact us about Rs 150 crore on an annual basis. So these are the ballpark figure but there have been drastic reduction in the import prices also like coal prices which had reached a peak level of USD 300 per tonne today they are hovering around USD 130-140 per tonne. Hence, the coal prices have drastically come down but the real saving in the input cost has been nullified because of the depreciating rupee. _PAGEBREAK_ Q: Since we are on the subject of rupee, could you tell us what does the debt currently stand at particularly on the forex side? A: Total loan we are having about Rs 22,000 crore out of which about Rs 13,000-14,000 crore is our forex loan but all is hedged because we are having a very clear hedge policy approved by the board. Q: In light of the weak demand that we have seen could you tell us currently what the inventory levels stand at and also perhaps what will be the additional capacity addition that we could expect in FY14 itself, how much comes onstream? A: Today we are having a capacity of 14 million tonne and our capacity towards the end of the current financial year by March 2014 will go up to 19 million tonne. Two large size blast furnaces are getting commissioned. In fact one large size blast furnace of 4,060 cubic meters is getting commissioned at Rourkela steel plant in next week or 10 days time. After getting commissioned this will become the largest operating blast furnace in India. This will enhance our capacity by about 3 million tonne.
Second blast furnace of a similar capacity, 4,060 cubic meters is getting commissioned by the end of December 2013 in our Indian Iron & Steel Company (IISCO) Burnpur steel plant. So with these two blast furnaces getting commissioned during this financial year, our capacity which as of now is 14 million tonne, will go up to a level of 19 million tonne towards the close of the financial year. As far as the inventory level is concerned we are holding about 0.6-0.7 million tonne of inventory. This is a normal level of inventory, there is no escalation or rise in the level of inventory because we are having about 3,200 number of dealers, number of stock yards so to have the proper minimum stock at such a vast marketing network, which our company is having all over India we require this much minimum level of inventory. Q: We were looking for some numbers even on your current debt on your books and whether you are raising any short-term loans in the market now? A: We are having a deposit level of bout Rs 4,000 crore cash in bank deposit in our various accounts. Our borrowing today is about Rs 21,000 crore. Our debt equity ratio is 0.56:1. Our net worth is about Rs 42,000 crore. Our borrowing capacity on very conservative debt equity ratio of about 2:1 is Rs 82,000 crore, against which our debt as on date is about Rs 21,000 crore. Q: Can you run us through when the wage negotiation is expected in FY14 and is 15 percent increase is what we have to factor in?
A: Our wages are due for non executive segment of the staff with effect from 1/1/2012 and wage negotiation is already on with the union, we have had 3-4 rounds of discussions. In the next 1-2 months time we should be in a position to finalise our wage negotiation with the unions.