Chinese steel companies are dumping steel into India at prices 25 percent below those quoted by domestic players, R K Goyal, Managing Director, Kalyani Steels, tells CNBC-TV18.He says the price cut by NMDC is a step in the right direction, and that his company's capacity utilisation currently is 70 percent.
Below is the transcript of RK Goyal’s interview with Nigel D’Souza and Reema Tendulkar.
Nigel: You have been telling us that things are not looking that great, etc but at least a bit of a positive surprise or a positive move is what we saw yesterday because NMDC have cut the prices on lumpy ore by close to around Rs 100 and on calibrated lump ore (CLO) they have cut by around Rs 400. What kind of benefit can we see on your margins? You have been telling us 18-19 percent is difficult, do you believe now it will be easily achievable?
A: NMDC has reduced the price. It is a very welcome move; they also feel that there is a need to reduce the prices. However, Rs 200 or Rs 100 reduction in lumpy ore or fines translates into only Rs 150 in the final price of steel, which is hardly anything as compared to the price of imported dumped material in the country where the difference is almost 25 percent.
Reema: Despite the raw material price cut, there is no scope for domestic steel prices to come down?
A: We would not like to reduce any price rather increase it so that we are able to protect our margin and service at least the interest. Today the industry is in such a situation, it is in such a heavy stress that it has become very difficult to service the interest, forget about the repayment of the capital.
Reema: If imported steel prices are 25 percent lower than the domestic prices, you indicated that imported steel is being dump, where is the scope to go ahead and increase prices?
A: You are right that there is no scope of increasing prices but we are trying to find ways and means, talking to our customers. As of now we have no confirmation from anybody.
Nigel: We are talking about iron ore prices but what about iron ore availability? We have been seeing in Karnataka that the sales have been moving higher, at least NMDC's numbers indicate that. What is the current iron ore that is available in Karnataka and also what capacity utilisations are you functioning at currently and are you looking to move to?
A: Total availability of iron ore is at the rate of around 22 million tonne per year in Karnataka which at its peak used to be around 55 million tonne and the total requirement of Karnataka is around 35-36 million tonne. In the process, since the prices of raw materials are high and because of the dumping of the material, many of the plant have closed down or are operating at a much lower capacity utilisation. Therefore, Kalyani Steel is also operating at a capacity utilisation of around 70 percent. Since the total capacity utilisation of industry is much lower and hence accordingly the conjunction of iron ore has gone down._PAGEBREAK_
Reema: With respect to the prior quarter, while your revenues came down by nearly 4 percent, your operating profit improved a fair bit. It went up by close to about 50 percent. How has Q2 shaped up, could you give us a sense of what the revenues and margins could look like?
A: It will be very speculative if I comment anything specific. However, we are suffering very badly because of this adverse movement of rupee. The depreciation of rupee is going to hurt us very badly; our total cost because of the devaluation of rupee has gone up substantially.
Nigel: Wouldn’t the depreciation of rupee make imports as well more expensive so that could be a benefit in that way at least, the gap that you are talking about between landed steel as well as imported steel – that will come down because of the depreciation of the rupee?
A: Even though rupee has depreciated, imports have not reduced. Due to this depreciation as far as import part is concerned, it is only 2-3 percent vis-à-vis countries like China and all. Almost 50 percent of our raw materials are imported where we have to pay in dollars, so, our cost has gone up.
Nigel: Net-net rupee depreciation is not favourable to a company like yours?
A: That is true.
Nigel: Let us get a sense of what exactly is the difference currently, after the currency movements we have seen the yuan has got devalued, we have seen the Indian rupee as well get devalued and also I hear that there has been another price cut that has come about in China. So, after these moves what exactly is the current difference? Is it at around 15-20 percent? I ask this because I want to know what kind of a safeguard duty you will be expecting.
A: There are two three things which have happened. One, the prices in China are going down because of largely devaluation of yuan. Two, the local situation in China is worsening, the consumption locally is going down and hence people are becoming more and more aggressive in dumping the material.
At the same time, as far as India is concerned, the demand is not increasing. Due to devaluation material has became little expensive but that is more than offset by the reduction in the price in China. So, we are yet to see the difference in the total import quantity into the country because the impact of all the decisions which have been taken in last couple of weeks, we will know after a month or so.
Reema: How will the full year look like for a company like yours?
A: We are working very hard to see that we are somewhere closer to last year.
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