Even as there is a call to reduce dependence on Chinese products, Indian businesses are latching on to the opportunity that the market in China provides.
Steelmaker Jindal Steel and Power(JSPL) has not only done that, but also used its China play to return to black and record its best ever EBITDA, or earnings before interest, taxes, depreciation and amortisation, for a quarter.
While all the steelmakers increased their exports to China in the first three months of the financial year, it is the Naveen Jindal-led steelmaker that has made the most of the opportunity.
In 'normal times', JSPL used to export about 6,000 tons a month. But, from April onwards, that number shot up by over 2,000 times.
"In the last three months, we have exported over nine lakh tons of steel. Nearly 30 percent of these exports were to China," Managing Director VR Sharma told Moneycontrol.
While the company exported nearly 2.5 lakh tons of steel in April, this rose to a little over four lakh tons in May. Of the four lakh tons in May, 2.2 lakh tons was exported to China, the highest for any Indian steelmaker. Overall, China and the European Union were the two big markets for JSPL, says Sharma.
In comparison, Tata Steel and its units exported 72,000 tons of steel to China in May, and JSW Steel shipped 1.3 lakh tons.
These exports helped JSPL report a consolidated net profit of Rs 268 crore in the quarter ending March 31, 2020, from a loss of Rs 87 crore, a year earlier. Its gross revenue though was down 12 percent, at Rs 9,741 crore.
Among other steel companies, Godawari Power & Ispat had used the increasing demand in China to shore up exports.
The China opportunity
The secret to JSPL's high exports to China is JSPL's immediate response to the disruption caused by COVID-19, says Sharma.
"We modified our style. The moment the government included steelmaking under essential services, we asked the sales team to look at export markets as demand in India had come to nil," says Sharma.
A national lockdown was announced in India in May, with much of the economic activity coming to a standstill. Infrastructure, housing and auto sectors are the biggest users of steel.
JSPL asked much of its employees in departments such as finance, HR and IT to shift to work-from-home. On the other hand, at its plants, "we laid down SoP for hygiene and social distancing to ensure production continued," says Sharma.
The timing was crucial as China was just recovering from the virus outbreak, which was first reported in the country in December 2019.
"There was a huge stimulus from the Chinese government to kickstart its economy. But the steel mills in the country were unable to cater to the demand and thus they had to import," says Sharma.
The senior executive pointed out that it made sense for the Chinese to import from India, rather than from other alternatives such as Turkey, Russia or Ukraine.
"The shipping time from India to China is lesser, and costs are lower. It was a win-win situation for all," says Sharma.
Apart from China and the European Union, JSPL also exported to countries in South East Asia.
Sharma hopes to continue with the momentum in the coming quarters.
"We plan to produce 1.9 million tons in the second quarter, and will sell everything," he says.
Interestingly, industry observers point out that Chinese demand has been tapering as local mills in the country continue to ramp up their production.
"Exports have gone down," said a senior executive from a steel company.
At the same time, demand is picking up in India. Government-led spending has helped restart work in the infrastructure sector, auto companies continue to see better sales numbers, even though these are still lower than pre-COVID-19 levels. Bajaj Auto for instance, expects demand for its bikes to reach 95 percent in July.
This recovery in the local market will be crucial for JSPL.
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