Sundararajan says state-owned steel firm SAIL's losses will start reducing once the company's expansion plans are completed and it is able to achieve economy of scale.
The government is looking to extend safeguard duty to more steel products in addition to hot rolled coil (HRC) steel, Aruna Sundararajan, Steel Secretary tells CNBC-TV18.
The government had recently imposed a 20 percent safeguard duty on HRC for 200 days, but that has not been enough, says Sundararajan, adding that other measures like a minimum floor price for imports will also be considered.
In addition, the steel ministry is talking with the commerce ministry and finance ministry for co-ordinated efforts to reduce the stress in the steel sector, she says.
Sundararajan says state-owned steel firm SAIL's losses will start reducing once the company's expansion plans are completed and it is able to achieve economy of scale. She expects the company to turn operating profits by the end of this fiscal and report a net profit by the end of next fiscal.
Yesterday, RBI Governor Raghuram rajan had said that steel was one of the biggest problem areas in the economy because of huge over capacity.
Below is the verbatim transcript of Aruna Sundararajan's interview with Latha Venkatesh & Sonia Shenoy.
Latha: We keep hearing that the government is looking to support domestic steel companies from cascade of ultra low priced imports. What is the latest that you are contemplating? How much of an import duty or any other measure?
A: You are right. The government is fully aware of the unprecedented situation that the steel industry in the country is facing. We have already imposed safeguard duty of 20 percent but that has not been enough to stem the tide of imports. So currently we are looking at a basket of measures, we are looking at what can be done in terms of the safeguard duties being extended to other products. We are looking at what can be done to impose measures like minimum floor price. We are also looking at how we can work both with the commerce ministry and finance ministry to see what kind of comprehensive range of measures that can be taken to address the situation.
I cannot give the exact figures now because these are currently being discussed and finalised between the ministries but in the coming few weeks we will have fairly tough measures to ensure that we have a level playing field in the country.
Sonia: Currently the safeguard duty of 20 percent has been imposed on hot rolled coil (HRC), is that correct and will that be extended to cold rolled coils (CRC) soon?
A: Not just CRC. We are looking at extending it to a whole range of products, semis as well as niche goods because there are lot of things that are affected and we cannot have a situation where you impose duty on one category of steel and then products start coming in in another category. So whatever we do, we are looking at effectively dealing with the situation.
Latha: Will you put a minimum price. The point is the moment a duty is imposed; the landed cost gets adjusted by that level. Is there something like a minimum below which you will not allow import say USD 300 or whatever is considered cost of production?
A: What we are looking at currently is to see what can be a minimum floor price and in fact we have asked the industry also to give us figures on what are the cost of production, so that we can see what kind of a floor price we can look at.
Sonia: What exactly is the import currently? The last we heard the imports coming in, were at about 1 million tonne per month and it has been much higher than what we have seen in the previous years but currently how much is coming in per month in terms of imports?
A: Last year it was 10 million. We thought we would finish at about 12-13 million but the latest estimates are trending towards 14-15 million, which will be very high indeed.
Latha: When do you think a decision will be taken on all these issues that you spoke?
A: I think we will start seeing the first of the measures being launched very soon, which means within couple of weeks and thereafter in the next month or two we will have a fairly comprehensive strategy and set of measures in place.
Sonia: You said 14-15 million tonne is for the entire fiscal, for FY16 - that is the expectation?
Sonia: The other issue that we are facing is with SAIL. It is turning out to have bigger losses than before. Can you give us an exact strategy on how the government plans to turnaround SAIL?
A: There are two-three big ticket items. One is that SAIL has invested very heavily in capacity expansion and because of the capacity expansion not being completed; we are not able to achieve the economies of scale and thereby bring down the cost of steel to a very competitive level because once this expansion plan is fully done then certainly the cost of production per million tonne will be very competitive price. So the first priority is to get the ongoing projects on stream. The second thing is at this point in time the cost reduction, making sure that productivity is raised though set of measures are something that the SAIL is working on. The third, also looking at the product mix because there are certain products like products which are being used the railways; the Indian railways are on a major expansion plan. So, some of the products that they require and which will constitute firm demand for the next foreseeable future, those are the products that SAIL will start manufacturing. We hope very soon they will start rolling out these in the beginning of the next financial year.
Latha: Is it wise to increase production for whatever reason at a time of global dumping and the inability of Indian companies to sell what they already producing. Why should the government own steel? Is there no plan to sell it off? It doesn't seem like a venture that will pay off in the near future or even in the distant future?
A: You are right that the world is currently having huge glut of steel but the point is SAIL has already invested and 90 percent of the expansion has been done. However, the point is, what this expansion will do is two things. One, it will bring in huge economies of scale so that our Indian steel will be available to the consumer at an attractive rate. Second, it will bring in huge cost efficiencies and productivity increases both of which are exactly what the country needs.
Sonia: Could you give us some timeline on when you expect to turnaround SAIL since you have a game plan in mind. From Rs 1,400 crore losses that SAIL is currently sitting in the first half of the year. By when can we expect any improvement?
A: In the first half of the next financial year, we are hoping that the results of the turnaround strategy will start yielding results that the company will turn EBITDA positive in the next half of financial year; first it will start generating operating profits and thereafter by end of next year, if not the beginning of '17, SAIL should have turned around.
Time to show-off your poker skills and win Rs.25 lakhs with no investment. Register Now!