Target of domestic steel capacity of 300 mt by 2030 looks ambitious: JSW Steel

A: The target of 300 mt appears to be very much ambitious but if you look at what happened in the past, in 2005 the Indian steel industry was 38 million tonne. The national steel policy was prepared that by 2020, we would achieve 100 mt of steel production and capacity in India. The steel consumption would grow to 90 mt.

So if you look at 2017, we had installed capacity of 128 mt and the demand is close to 85 mt. Therefore, whatever policy we prepared earlier in 2005, even at that time it was appearing to be ambitious but we could achieve that.

Only some tweaking was done in the year 2012 that this capacity would grow to 300 mt by 2025-2026 that is now extended to 2030-2031. There are three important features as far as this national steel policy of 2017 is concerned. What is most important in that is inclusive growth. So the steel industry across the value chain both in terms of raw materials and also in terms of user industry and also steel industry everybody should be able to make money in a sustainable manner.

That is what the policy is talking about. In order to achieve that inclusive growth, they talked about globally competitive, technologically advanced also we should be self-sufficient. So from that point of view, I feel this 300 mt is an achievable target taking into account the kind of elasticity of demand with reference to gross domestic product (GDP) of 1.11 up to 2020 thereafter at around 1, it is a realistic target to do that if we want to be a self-sufficient in steel sector.

Latha: Why would you talk of self-sufficiency when the world has overcapacity of cement? That was the one that was jarring about this entire steel target, if you have excess capacity and cheap steel is available, why would you unnecessarily go on increasing capacity and secondly, I thought the more useful announcement last week was the fact that for all government usage, domestic industry would get the kind of an Right of first refusal (ROFR), is that a big propeller for demand?

A: It is very unfortunate commentary saying that why India should produce steel when there is a global excess supply of steel. India is quite competitive. When India is competitive in producing steel then if there is excess capacity, who has to close down and who has to close capacity. That is the debate which we need to do.

As far as Indian steel industry is concerned, it is globally competitive and it can produce steel, it has certain inherent strengths in terms of local availability of iron ore, domestic demand and also the non-coking coal which is there in India.

Coking coal if you can access in India through governmental initiatives will become very competitive. Therefore, it is a strategic industry, it has a very high GDP multiplier and employment multiplier. We should produce steel.

As regards to the governmental initiative of the preference for domestic steel in the procurement by government, I think it is a very good initiative but only one important point there is the value addition has been stipulated by the government at 15 percent. It is too low. Even if I look at US, in 1933 there was an act which has been passed by USA, it is talking about 50 percent value addition, so value addition within India should be at least 30 percent plus rather than having 15 percent. If 15 percent value addition remains, I think there are a lot of semi-finished steel come into India and value addition 15 percent norm is complied with. Therefore it may not stimulate the demand which the government intends to do through this measure. So as an industry, we have been requesting the government to increase this value addition norm from 15 percent to over 30 percent as is prevalent overseas.

Sonia: What are you forecasting in terms of demand growth, once GDP growth comes through, from this sub 90 million tonne that we have seen in this year, what kind of consumption growth are you looking at over the next three-four years?

A: World Steel Association has already given the guidance. In this year that is FY17, the steel demand is expected to grow globally 1.3 percent that translates to 23 million tonne of global steel demand. But what is very important here to note is out of this 23 million, 25 percent of the incremental demand is coming from India as far World Steel Association (WSA). So we are seeing definitely green shoots as far as Indian economy is concerned, infrastructure or construction sector so we expect the demand to pick up because that will stimulate demand to the extent of around 50 percent of the overall demand growth in India. So we expect this year should look better than what we have seen in the last financial year.

Latha: On the government’s initiative for non-performing asset (NPA), now there is going to be an accelerated sale or recovery of restructuring of loans, what do you see as your role, do you see opportunities to buy at fairly bargain rates?

A: Definitely opportunity, for investors in the year 2014 RBI’s circular is talking about identification that is a rectification if there is any probable NPAs, after that restructuring and then recovery. These are the three phases which have been identified in the year 2014 to sort out the problem of NPA. But there are very few cases where resolution has happened. That is what government of India and the RBI is trying to address where there are no decision making that is why that process is getting streamlined, so we expect some resolution would happen through this process and this is an opportunity for steel companies like JSW Steel.