Steel to cost Rs 500/tn more if rupee weakens: Uttam Galva

The recent depreciation in the rupee has given domestic producers an opportunity to increase steel prices, says Ankit Miglani, Deputy Managing Director (MD) of Uttam Galva. Steel import hikes by the government have not helped much, he adds. If the rupee continues to devaluate, steel prices can rise Rs 500 per tonne by September this year, Miglani told CNBC-TV18. Recent devaluation in Chinese currency is making imports more attractive for customers, he adds. That is because producers in China can offer competitive prices because of the weakness in their currency. Miglani says demand, more than the price of imported steel, will decide domestic steel prices in coming months.Despite the imports, there has been 100 percent sale of domestic steel, he says adding that demand grew by 7 percent in recent months. In FY16, he expects shortage of steel due to increased demand. On stop gap measures, he says issues like lack of mining and infrastructure facilities are the key hurdles for producers in keeping costs down. Below is the transcript of Ankit Miglani’s interview with Nigel D’Souza and Reema Tendulkar on CNBC-TV18.Nigel: We have seen a couple of import duty hikes coming in the last couple of months. Has it given any kind of protection to you all? Give us some sense with regards to the Chinese devaluing their currency. Has it hit us more? What are the total imports that we are seeing into our country? A: Regarding the Chinese devaluation, the amount of devaluation has allowed them to drop the prices pro rata. So, where we were looking at USD 310 Free On Board (FOB), we are now looking at closer to USD 295-290 FOB as far as hot-rolled coil is concerned which equates to something like USD 320 CNF price as far as India is concerned. For countries like Vietnam and all these South East Asian countries, it is even lower.Reema: So for the industry per se, could you tell us how much we have been importing per month? What are the figures and how does it compare with say three months ago?A: I don’t have the exact figure for the month, but we are going at a run rate of importing about 6 million tonne a year. This could vary between month to month or because shipment schedules and other issues. So far, we have already imported 3 million tonnes for the six months till date.Nigel: This 2.5 percent hike that we have seen, that is 5 percent in the last couple of months, it has made no difference whatsoever and if in case there is a safeguard duty that comes in, should it be at around 20 percent to protect domestic ferrous industry like you or is 30 percent the number you are calling for? A: On its own, the 2.5 percent and the second 2.5 percent, it did not make any major impact at that point. However, coupled with the fact that the Indian rupee has devalued, it has kind of significantly increased the cost of imports to such an effect that we might see an Rs 500 hike in product prices in September which is something that was not expected at all. This is not just because of the import duty. It is because of the drop in the rupee also which also implies that it is temporary depending on how the rupee reacts. If the rupee devalues further, the price of Indian steel could go up significantly higher. If it stays the same, it should be flattish. Regarding safeguard duties, this is a temporary measure requested by the steel companies to the government to compensate for all the deficiencies in the structural issues that we are facing today. A country like India is importing iron ore, clearly something is wrong. In addition to that, we don’t have enough roads, highways – infrastructure is a significant issue. The cost of transporting steel from Mumbai to Delhi is significantly higher than the transport cost of moving steel from Mumbai to New York, which is clearly showing that there are severe infrastructure issues in India which needs to be resolved and these are the ones that are creating the problems. So, all we are asking for is a stop gap measure to protect the steel industry until these issues are sorted, which are not permanent issues.Nigel: There is a potential that you can increase prices by closed to around Rs 500 because of the rupee depreciation. What is the current difference between the landed cost of imported steel and domestic steel? I believe domestic steel is at around Rs 27,000-28,000 approximately, so landed cost of steel what would it be – Rs 25,000 or 26,000 approximately. How exactly can you push this Rs 500 hike? Secondly will demand support it as well?A: The difference in imported and domestic steel is still ranging between Rs 2,000-3,000 subject to rupee volatility per tonne. In spite of this, we think that demand and growth are coming back. We have started seeing a seven percent growth in a demand. Now with that kind of volume requirement, we think that next year there should be a severe shortage of steel.Even today in spite of the heavy imports, we are able to sell all our product so when prices are being increased it is not a function of cost or anything of that sort. It is a function of order book. If you are able to sell all your products at the end of the day you increase your price. If you are not able to sell your products, you decrease your prices. So, it is a purely a demand issue.It is not function of whether the import is cheaper or not cheaper. So, what we are seeing is we see demand coming back to some extent, sentiment improving and that is why we feel that there is a potential for prices to stabilise or even marginally increase.