Safeguard duty counterproductive for demand: Uttam Galva

A: The safeguard duty has been quite a disaster. It has had counter effect on the market. It has demoralised the market significantly. It was unexpected, it came out quite suddenly so we have to keep in to perspective that the materials that were booked to come into India in October, November and December were already in the pipeline, so they will come anyway. As a result of that all the importers who had booked this material had to face an additional 20 percent duty which was not budgeted for.

All the traders and end-users took a significant beating on that and that has obviously drained out significant working capital from the market. So, it has been counterproductive as far as the demand situation is concerned, the less the working capital obviously the lower the demand.

Second aspect is that after the safeguard duty has been announced the prices of finished products are lower than the prices of the raw materials. So, what that means is all the users, traders everybody is importing finished products instead of importing hot-rolled coil. All those products will hit the market in the next quarter which is January-February-March quarter and that will create another mess in that quarter and it is significantly distorted the market.

To put into perspective today imported cold rolled closed annealed (CRCA) is probably about Rs 2,000-3,000 cheaper than the price of hot roll coil in India today. I believe there is significant amount of pipes being imported and all finished products are being imported in heavy volumes and that will hit the market next quarter.

Ekta: How is this affecting your business?

A: It has a severely negative effect on our business. It is very difficult for us sell our finished product because the traders and end users are bringing in cheap Chinese colour coated steel which we have applied for safeguard duty for, but no action has been taken. It is important to note that the application for safeguard on colour coated was put in before the application for hot-rolled coil and that has still not been put in to affect even though the hot-rolled coil duty has already come in.

Anuj: Any update on the debt situation and the fact that you have applied for 5/25 refinancing?

A: In Uttam Galva Steel Limited we have applied for 5/25. Fortunately as per recent Reserve Bank of India (RBI) guidelines even external commercial borrowings (ECBs) are covered under 5/25. The reason we have not applied for 5/25 earlier is because most of our debt is in ECB form the proposal is currently under appraisal at State Bank of India (SBI). We hope to have some conclusion with SBI within December. If that happens on the timeline that we expect then by March we should have full financial closure on that and our next year balance sheet will be significantly better than this year’s.

Ekta: Are you seeing may be an inventory build-up and because of the imports of finished products which are now taking place in the market like you mentioned and hence is it now becoming may be a little difficult to service your interest cost?

A: The inventory build-up, I would like to split it up into two aspects one is that there is no inventory build-up across the supply chain as far as downstream is concerned. The traders, end-users, distributors do not have inventories because nobody wants to take a position today. Everyone knows that prices are falling every day. No one wants to hold any stock more than then really have to. In addition to that there is also shortage of working capital so most of the end-users can’t afford to hold inventories.

On the other side the producers of steel still have heavy inventories stock. The volume inventory defers from producer to producer but overall the inventories are definitely higher than the year ago.

Regarding our interest cost, so far we are still in a position to cover our interest cost and we are able to keep our head outside water. Although October-November-December is definitely the worst quarter that we have seen in a very long time and is probably a worst quarter that we have seen for a very long time going forward.

However, we are still able to sustain right now and we have put in a lot of effort and a lot of programmes within the company to maintain our EBITDA levels so that we can continue to sustain our interest cost. We have about 9,500 people working in the group. I am pretty sure that each and every one of them is committed to finding innovative ways to improve the business plan and to maintain our EBITDA level.

Anuj: A word on your export situation is there enough demand for your exports? In the past you had maintained that you want to raise that from 30 percent to 50 percent?

A: A couple of months ago the US initiated an anti dumping investigation for all importers focusing on China, India and few other countries and because of that in October- November-December our exports have been significantly hit as our volumes to the US has dropped significantly.

However, the first preliminary results on the countervailing duty on this investigation have come out where Uttam Galva got slapped with a duty of 7.7 percent but the Chinese suppliers have been slapped with a duty of 256 percent. So, we see this as very bullish sign and we see it opening up a huge gap in the supply–demand situation in the US market. So, we think next quarter onwards our exports should significantly jump to those markets.

In addition to that we have put in a lot of efforts in developing our exports to Latin American markets, in Middle-East and Africa. In spite of a falling market we have achieved 250 percent jump in sales in the Middle-East and African regions. So, we are quite bullish of our efforts there, in spite of the fact that the markets has been falling and there is a severe shortage of currency in the African countries. We are putting in a lot of effort to compensate for drop in sales and I think next quarter all these efforts will show significantly in our results.