Govt should take steps to protect local steel players: JSPL

Ravi Uppal, MD & CEO, Jindal Steel & Power Limited (JSPL)  in an interview to CNBC-TV18’s Latha Venkatesh and Sonia Shenoy spoke about the outlook for steel prices for the company and the industry.According to him the steel prices will continue to remain under pressure on back significant imports from China.Chinese steel is cheap compared to domestic steel because the Chinese manufactures get lot of subsidies and help from their government whereas for Indian steel manufacturers Indian steel producers face threat from their Chinese counterparts because there is no level playing field. Chinese manufacturers can afford cheaper steel on back of aid in terms of subsidies from their government, says Uppal. Moreover the steel demand too has been weak in FY15, he adds.According to him the government of India needs to take steps to protect the domestic steel producers.He thinks with the coal e-auction the landscape for coal production is likely to change in the coming 12 months and India will then have adequate coal in the next 1-2 years.Indian steel producers are very competent but need enable conditions to hike up the capacity from 100 million tonne to 300 million tonne in the coming 12-15 years, says Uppal. Talking about expansion plans, he says the money raised from Kotak Mahanidra Bank via NCDs will be used for expansions as well as coal auction.

Below is the transcript of Ravi Uppal's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: What is the trend you are seeing? Is there a greater pressure on Indian steel company margins with the general fall in commodity prices?A: Certainly the prices of steel are under pressure not for any other reason mainly because of the imports from China have increased dramatically. If you look at the first eight months report card, the imports are up by 55 percent. The total imports that we have done already in the eight months are more than the total imports that we did last year. Moreover, there is no level playing field when it comes to competing with Chinese players. They get a huge kind of incentives and subsidies from their government, so the Indian producers on their own cannot fight out the Chinese producers as long as there is a level playing field.The bottomline is that the prices of steel at this moment are under tremendous pressure as we have to fight out the prices offered by the Chinese at this point of time.Sonia: How do you expect the prices of steel to pan out going ahead say in the next three to six months, where is it currently and how much more pressure do you foresee and what do you think could be the solution to the huge imports that are coming in from the Chinese market? A: There are two aspects, number one the domestic demand hasn’t risen as much was expected. In the first eight months the demand is up just by 1 percent. If you look at the total consumption the imports are up by nearly 2.4 million tonnes. The domestic demand is up by nearly 0.4 million tonne compared to last year. So, this basically means additional 2 million tonnes have been taken by imports from the domestic manufacturers.I am hoping that the multiple steps taken by the government will show some results but not immediately. From the first quarter of next year we can see some green shoots coming and the demand should start looking up. Government has initiated lot of infrastructure projects; they are also trying to see that the infrastructure projects which were stuck for some reasons they also get moving. I think a positive result in demand will be seen from the first quarter of next year. As far as the competition from Chinese is concerned, government should sort of take measures so that we have a level playing field. There is so much campaign today for Make in India and Make for India; there we have to take ground level measures. For example things like if the Chinese are giving 13-16 percent of incentive or subsidy we must have some kind of duty protection against that. The Indian producers are very competent and can match up to Chinese but since the Indian steel industry also needs to hike up its capacity from 100 million tonne to 300 million tonnes in the next 12-15 years time, there is a need to create enabling conditions. If you look at China even during the years of bumper growth they used to have something called ‘Buy China’ or ‘Buy Chinese’. Americans have done the same in the past. So, we should not feel reluctant to take the necessary measures to build up of our manufacturing sector because that is going to hold the key to the growth of 8 percent plus in future.Latha: You raised money through NCDs from Kotak Mahindra Bank. What was the purpose of that loan? A: As the business is growing for us and we also have some projects which are in the pipeline, we are close to completion so we had some kind of needs and one way to meet for us was to go through the NCD route. Latha: Was some of that at least raised for both the penalty and to pay for the mines. Is there any indication you can give on how much for which? A: We don’t have this kind of delineation. We have a cumulative need to meet the needs of the project, plus we are going to bid for some of the projects in the very near future including the auction. Therefore we have an estimated total requirement of funds. So, this is a part of that. Sonia: Can you just give us your plan to procure coal going forward, what is the agenda, will you import coal, will you source form the e-auction and is it still feasible for JSPL to bid for Utkal B-1?A: As of now some of the coal we were getting out of the mines that we had, some of it was being imported. Most of imports have been the coking coal from our own mines in Mozambique and Australia. Special grades of coal like coal bricks, Anthracite we import from South Africa. So, there is a combination, we are sourcing coal from domestic sources as well as taking it from imports. We are going to participate in the auction which is going to be held soon and depending as to how much of success we have, we will decide how much to import and how much to continue to source from domestic sources.

Latha: Chances are since Utkal B-1 has been set aside for power you will have to import more, what is the plan since that was suppose to feed into Angul. What will be the plan since that is not available now?A: We have to see on a wider canvas the coal situation. The government wants to auction the coal mines schedule 2, schedule 3 to start with. Later on the schedule 1 mines will also be offered on auction. I feel that the whole landscape of coal production is going to set to change in the next 6-12 months time.I don’t think that the virgin mines will start producing within the 12 month timeframe because it takes you certain time to make them productive. However, at least those which are under schedule 2 and schedule 3, they will start producing coal in the next 12 months time. So, I think we have so far got so used to living in a regime of shortages of coal that we are not able to envisage a situation where we will have surplus coal. I do feel that in a time from 12-24 months time that we are going to have plenty of coal and there won’t be so much of clamour to get coal as we experience today.