Domestic ind in dilemma – to cut prices or prod: Kalyani Steel

With the Budget just round the corner, the steel industry is hoping for some stimulus to come there way.RK Goyal, MD, Kalyani Steels in an interview to CNBC-TV18 said steel prices had firmed up slightly on hopes of minimum import price but with no news on that front, the prices had to be cut. However, the expectations from the Budget are high. Currently, the industry is in a dilemma whether to cut prices or cut production, said Goyal.Steel prices were cut by around Rs 2,000 to Rs 3,000 per tonne depending on the grade, size, and finish in order to keep up with the prices of the cheap material dumped by China.China dumping is hurting domestic industry badly, said Goyal, adding that cutting prices further would lead to additional losses.Currently, steel prices are 25-30 percent lower compare to prices six months ago because the Chinese steel prices are 25-40 percent lower than domestic steel prices, he said.Below is the verbatim transcript of RK Goyal’s interview with Nigel D’Souza and Reema Tendulkar on CNBC-TV18.Nigel: Last couple of weeks we hear that there have been various price cuts. Could you tell us what is the quantum and could you tell us what is it in comparison to the run up that we had in late December as well? A: When there was news related to minimum import price (MIP) by the government, there was some increase in price. However, it did not happen for almost two weeks now and again we had to reduce the prices so that we are able to sell. Sentiments have again become very poor as a lot of material is being imported into the country and it is hurting our volumes as well as prices. Very cheap material is being dumped into the country at ridiculous prices and it is hurting the whole industry very badly. Reema: Can you give us some sense of what the steel prices are now at say compared to six months ago? How much lower would they be on account of cheaper dumped raw material prices? A: As compared to six months back, now prices are lower by almost 25-30 percent. The prices at which material is coming into the country, our raw material cost is much higher than that. So, forget about the manufacturing and the conversion cost. Reema: If your prices are now 25-30 percent lower than six months ago, are you also now operating at much lower capacity? How would your capacity utilisation now stand at vis-à-vis what it was three and six months ago? A: Our capacity utilisation is much lower as compared to what it was some six months or one year back. We had to reduce the prices substantially which are almost 25-30 percent lower and still we are finding it very difficult to sell because imported material has made inroads into the market and is being used by anybody and everybody because it is much cheaper as compared to the domestic manufacturers cost. Nigel: Just in the last couple of weeks what is the quantum of the price cut, is it around Rs 2,000-2,500 per tonne?A: That is right; it is anything between Rs 2,000 and Rs 3,000 per tonne depending on the grade, size, and finish. Nigel: What would you attribute it to, a weak demand, is it because of the imports or is it because of the Chinese currency depreciating by such a large extent in the last couple of weeks?A: My understanding is that the demand is stable but much larger imported material is coming into the country and that is finding the place. So, in the process, our volumes are going down and the pressure on the price is because people have started comparing us with the dumped material prices.Reema: You were telling us that although all the domestic steel players have cut prices, it is still significantly higher than the imported steel prices. What is the differential currently? Secondly how is it affecting your financials? What should we expect, say a company like yours to deliver in the coming quarter, January to March?A: There is a price difference of still around 25-40 percent between the internationally Chinese dumped prices into India and local manufacturing cost. Reema: Domestic players have cut prices, even after that you are saying there is a 25-40 percent differential between domestic steel prices and international steel prices?A: That is right and rather than saying international steel prices, it is better to say Chinese prices in India which are dumped and which we believe are not really registered. Nigel: Could you give us what is the current domestic price in terms of dollars and could you compare that same price in dollars in terms of Chinese imported landed cost? A: Chinese cost, insurance and freight (CIF) price for say hot rolled coil is somewhere closer to USD 260-265. If you talk about landed price including the import duty and everything it comes to closer to USD 300 or so and plus the local transportation and all. Similarly, export prices of most of the people in the country may be anything between Rs 24,000-25,000. Reema: Will domestic steel players be cutting prices further and if yes by how much? A: Everybody is in a confused stage because if you reduce the prices further, you make further additional losses. So, everybody may take his own course of action, whether to reduce the price or to cut the production and all.