Moneycontrol
Last Updated : Oct 05, 2016 01:05 PM IST | Source: CNBC-TV18

Expect H2 biz pickup to push up steel demand by 4-5%: JSPL

In the first 6 months of the year, steel demand grow by just 0.5 percent, and now with the end of monsoon business activity with pick pace in the second half which is likely to push up steel demand by 4-5 percent for the year, said Ravi Uppal, Chief Executive and Managing Director of JSPL.

In a departure from the trend, August core data shows that steel output surged substantially by 17 percent. Jindal Steel and Power's management attributed the rise in steel output to coming into action of secondary units which were stalled earlier. Steel demand, however, is yet to pick up, according to the company.

In the first 6 months of the year, steel demand grow by just 0.5 percent, and now with the end of monsoon business activity with pick pace in the second half which is likely to push up steel demand by 4-5 percent for the year, said Ravi Uppal, Chief Executive and Managing Director of JSPL.

Uppal said that the company is consolidating its business and is looking divesting non-core assets. JSPL's core assets include steel and power.

Below is the verbatim transcript of Ravi Uppal’s interview to Nigel D'Souza, Latha Venkatesh & Reema Tendulkar on CNBC-TV18.

Latha: Before I come to the minimum import price (MIP) impact, for the month of August we got this big number from the core sector that steel output has grown by 17 percent. Has demand really picked up for steel on the ground?

A: It is true that the steel output during the month of August has gone up because lot of secondary units which were lying closed they have come into action. However, the demand is still to improve at a matching rate. During the first six months of this year the demand grew just by a 0.50 percent.

However, of course then you can attribute to the fact that we had a monsoon period during the first half. Now the monsoons are virtually getting over and we are getting the start of the second half of the year which normally has more business activity picking up. We believe that during this year the demand on the whole will grow by 4-5 percent.

Reema: Just yesterday you made an announcement about divestment of a 24 megawatt wind power business which is located in Maharashtra. Could you give us some more details what is the amount that you will raise from this?

A: I am not in position to give you the amount. We have got fairly decent offer on this one; on the basis of which we have concluded the agreement with the IDFC. We are basically in the process as I have spoken earlier to you on your channel in the process of consolidating our assets.

We are going to be very deeply focused on what is our core business which is mines and minerals; it is power and thermal sector and it is steel. So, therefore anything which are part of the asset but not core, we would be divesting that. The consolidation is going on, it is in progress, so earlier we had divested one asset now this is another one and the effort we will continue.

Nigel: For the last few years you have been talking about your pellet plants. You had put up a good capacity, but demand wasn’t really coming in. However, I am just seeing in the last six months demand has picked up, prices well have picked up, the export market particularly I think pellet prices have moved up substantially 20-30 percent. Why is this happening could you give us some details on that?

A: You are right in saying that the pellet demand especially the export demand has picked up during the last two to three months. The price it used to be in the range of USD 62-65 CFR are now in the range of about USD 84-86 CFR. So, there is an improvement of about 35-40 percent prices. That is because there is a lot of demand from China and a couple of other countries in Middle-East and Africa, so that has seen a spurt in prices.

In China the government is discouraging use of sinter. They think the sintering plants are polluting, so therefore there is a clear trend to go more towards pellets and lumps. We in JSPL we are the second largest producer pellets in the country. We export almost like 50 percent of our output to the export market wherever the prices are appropriate.

Nigel: What is your current capacity utilisation in terms of your pellet plants? I remember it was very low of late so your total capacity, what is your capacity utilisation? Could you give us those details?

A: The capacity is 9 million tonne. We are now producing at a rate of about 85 percent of the total capacity.

Nigel: The other big drag over the last few years has been your coking coal assets. Coking coal prices they had fallen and then there was no money being made over there. However, you have a couple of international assets that is coking coal assets. Coking coal prices have moved from USD 82-200 per tonne just in the recent past. What kind of benefit can you get out of them and what really is the outlook on coking coal prices? I haven’t seen it at around USD 200 per tonne in the last few years I think?

A: The upward movement in prices of coking coal is a good news for JSPL as you are aware that we have the coking coal mines in Australia and Mozambique. We had to shut some of these mining operations in the early part of this year because prices had fallen to such a low level that it didn’t make any sense for us to produce a coking coal. However, the mines after the recent spurt in prices have zoomed back into action.

Australian mine has gone into production already from July and the Mozambique mine has once again started operation from early part of this month. So, we are happy about this upward movement because the levels that market had seen earlier was simply unsustainable. What happened during the last one and half years that lot of mines in Australia and United States had to close down because the prices simply were not sustainable.

Therefore there is a limitation; there is a limited supply of coking coal at this moment. Parallelly, in China the production of coking coal had also come down. So, all this things put together led to a limit on supply of the coking coal which basically saw as you said the prices went up from USD 85 to over USD 200.

I personally believe that these prices will stay there for a while until such times that the supply side starts to improve and after that price may soften a bit, but will never go back to USD 85 in my opinion.

Latha: I do want to get an idea of your deleveraging plans? At the moment your interest outgo is still much higher than your earnings before interest, tax, depreciation and amortization (EBITDA) or profit before depreciation and tax (PBDT) what are the deleveraging plans therefore?

A: First thing is that we have to increase our volumes. We have to have better realisation in the market and EBITDA has to improve. EBITDA is dependent on the net sales realisation as well as volume. Efforts are on to see that both of them come up. So, it is a progressive journey step-by-step, but I do see good promise on the horizon. I think in the next two quarters you should see that the earnings levels will improve.

Reema: Any update on your power purchase agreement (PPAs) with the UP government when is it likely to be signed?

A: Well, I can’t say because the matter is with UP government. As per we are concerned we are among the best bids they have got. So, anytime they take a decision I am sure that JSPL will be favoured with the order.

Nigel: In terms of your deleveraging plans you can’t give us guidance but can you tell us it is at Rs 46,000 crore today, in the past you have told us maybe it will come down to around Rs 25,000 crore in the next one year that plan is still on?

A: We never said Rs 25,000 crore in one year. I said over the next two to three years time our corporate objective is to bring down the debt to a level which is sustainable. Our wish is that we bring down the debt in the range of Rs 25,000 to 30,000 crore.
First Published on Oct 5, 2016 10:32 am
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