In his maiden full-year Budget, Finance Minister Arun Jaitley proposed a hike in custom duty of metallurgical coke from 2.5 percent to 5 percent. Speaking to CNBC-TV18, RK Goyal, MD, Kalyani Steels said the hike in coke import duty will affect the margins of the company.
After state-owned marginal producer NMDC proposed a minor cut in its expenditure to Rs 3,588 crore, Goyal said there is a possibility of further cut. According to him, global prices are at a discount to NMDC iron ore prices. The company may look to import iron ore if global prices correct.
Below is verbatim transcript of the interview:
Q: NMDC has reduced prices of both lumps and fines, how does that impact you?
A: The total reduction in price by NMDC is much lower as compared to the global prices which have come down over the last one year and so, we are expecting much larger reduction by NMDC. Whatever little they have done is good.
Q: Are you largely sourcing your raw materials from NMDC?
A: All the materials sold in Karnataka are through e-auction. Besides NMDC there are some private players also but almost 60-70 percent material is coming from NMDC and we buy through e-auction.
Q: We still have no clarity on what has come through in the Budget for companies like yours? Has the custom duty been changed, what is the quantum now, would you be able to share some light on this?
A: There are quite a few things that have happened in the Budget. Many of the positive things we may not be able to read right now but it is very clear it is a visionary Budget. It is very bold, it will bring much larger growth to the country, to the economy and it is in the direction of Make in India.
Q: Whether there will be any difference to the steel import duties?
A: As far as steel import duty is concerned, the effective rate of duty remains same. Even though there is an increase from 10 percent to 15 percent it is still not clear what exactly it is when the effective rate of duty is going to remain same. So, as of now, we are not very clear about it and are trying to find out the same.
Q: Any news on coke import duty?
A: The import duty on coke has been increased from 2.5 percent to 5 percent. It will definitely affect all the steel manufacturers who are importing coke. At the same time the steel energy cess has been increased from Rs 100; that will also increase our cost.
As far as steel industry is concerned, there will be increase in our costs. Looking at the current environment I don’t think we will be able to pass it on to our customers. Besides this there is an increase in freight which was announced in the Railway Budget.
Q: When you spoke about NMDCs reduced prices with global prices crashing and therefore the landed import price going down not being an effective way in which NMDC will be forced to lower prices to Rs 2,000, can’t you switch to imports if they don’t change?
A: Why should one have a plant in India and within India somewhere closer to the mines? It is the basic arbitrage of the transportation cost. If we have to import raw material, import iron ore and bring it to the land block the plant location then the logistic cost does not work.
If I am at the port still I am little better off but then if I have to import iron ore as well as coking coal then why to have a steel plant in India? So, even though the global prices are much lower because of the total logistic cost and our poor infrastructure it doesn’t make any sense to bring iron ore to our plant.
Q: What will be your operating margins for Q4 or for Q1 of next year? How much do you see it falling, is it a possibility that some steel units may go out of production if the finished good is cheaper than the domestic steel?
A: As of now whatever imports are coming from various countries like Korea, Japan, China and Ukraine are much cheaper than our manufacturing cost. However, you just can’t put off a steel plant.
If they are big glass furnaces they have to be run continuously and over a period of time maybe decide to stop one glass furnace or you can reduce your production little bit but it is not an on and off situation. So, we have to continue may be if the current situation persists then we may have to shut down one of our glass furnace.
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