Govt should protect India’s steel industry from dumping in the wake of non-tariff barriers across globe: JSPL’s MD

Bimlendra Jha.

Jindal Steel expects the government to guard against dumping of steel in the face of non-tariff barriers coming up in various parts of the world, including Europe. The company’s managing director Bimlendra Jha said that he expects the government to create a level playing field for the industry in the upcoming budget, underlining that Indian steel companies faced multiple challenges in 2022 such as dwindling exports, slack demand, lower prices and shrinking profit margins.

The managing director in a detailed conversation with Moneycontrol spoke about the demand-supply situation, challenges in the macroeconomy, industry outlook and expectation from the budget.

Edited excerpts:

Let’s start with the demand-supply situation, especially in a global situation that is facing a recession scenario and geopolitical tensions.

Uncertainties still loom large in the world. Europe continues to be in conflict. The renewable energy situation is still not where it is supposed to be. So we are very much dealing with 2023 under very similar circumstances as 2022, barring a few things that are probably different for the steel industry in India.

The steel industry in India saw two halves of the year differently or probably quarter by quarter. Things are very different in 2022 with the government imposing certain export curbs on steel as well as iron ore in its own wisdom, because steel prices were going through the roof and it was important to secure raw material for downstream industries. It came at a time, unfortunately for the steel industry, when prices started softening and imports started happening. India became a net importer of steel.

Exports were not promising at 15 percent duty. And as a result, Indian steel players suffered. What we hope in the next year is that no such restrictions are put so that we have a level playing field.

We also hope that there will be stability in prices. With the reopening of the Chinese economy and COVID curbs there being lifted, we have already seen that international prices have started moving up. And India and China continue to be the heavyweights in the steel industry.

China particularly governs the prices across the world. But the outlook seems positive from India’s perspective for sure, because India continues to be an exception among the world’s major economies, where it is growing positively. And we do hope that this momentum is maintained in the budget.

Do you see a change in the margin profile of the industry? Where do you see the growth coming from? Cost-saving initiatives or higher demand?

The steel industry is cyclical and, therefore, it always has focused on cost-saving measures. But prices typically are determined by demand. There was a peculiar situation in the interim, particularly in Q3 of the current calendar year or what you call Q2 for the current financial year, where you saw the squeeze in margins. Since then, things are looking up and we do expect the steel industry in India to do better financially given the return of demand, the festive seasoning monsoon being behind us, the construction and infrastructure sector doing well, the auto sector doing well.

You can see the GST(goods and services tax) collections trending up. I have a positive outlook for steel demand over the next two quarters.

What kind of demand growth is expected for FY24/CY2023?

I expect 6-6.5 percent demand growth for FY23. I think similar growth can be expected in the next calendar year as well.

What was the intent behind purchasing Monnet Power, especially after divesting power assets due to ESG (environmental, social and governance) reasons? Monnet’s Angul, Odisha plant has a deficit of 119 megawatts. Then why  has the company purchased a power plant with a capacity  1050 MW ( Monnet Power)?

Decarbonisation is not a one-day journey. You move towards decarbonisation and Monnet Power gives us a 25 percent potential reduction in our carbon footprint from power. That is because this plant is more fuel-efficient by about 20 percent. If we compare our 135 X 6 MW power plants, compare that to 525 X 2 which is 1050 MW, our plants’ power can be replaced by Monnet Power and it immediately reduces our carbon footprint.

Our emissions would go down quite significantly with Monnet Power, because it is right next to our coal block from where the pipe conveyor will be coming and it will be delivering this coal right into this plant at a very low cost. That means our costs will come down quite significantly. So that is a win-win from a carbon perspective as well as from a cost perspective.

Could you put in perspective the savings percolating down on account of Monnet Power plant?

We are not self-sufficient in power, we are buying it at upwards of Rs 6 per unit and this one would be much below Rs 2 per unit, particularly when using our coal mine, which would lead to a saving of Rs 4 per unit.

What kind of additional capex would the plants require?

One of the plants is in a higher state of readiness, 525 MW. That will be commissioned first and it will be followed by the next one. The total cost of this work is somewhere between Rs 1,500 crore and Rs 2,000 crores over two years.

Now, the first one will be probably closer to Rs 500-600 crore. These are not exact numbers but it will be low given the state of readiness of the plants.

With the capex plans and consolidated debt of nearly Rs 7,000 crore, how do you expect that to shape up? And also would the company now shy away from leveraging for growth?

JSPL is moving towards being a net debt-free company. But we have also said that we are putting a self-imposed cap of debt to EBITDA (earnings before interest, taxes, depreciation and amortisation) ratio of 1.5 times. Now, if you combine the two statements, you will have a clearer picture, because we are currently at around 0.6 times.

The parent company with its existing investments will bear its existing debts and our aim is of course to go towards zero. But this is one part of the story. The second part is the growth story. So JSPL will become like a holding company for Jindal Steel, Orissa, which is the company from where most of the growth is coming. And that company is borrowing money. But it has a strong parent that does not have much of a debt burden or is eliminating its existing debt burden. But 1.5 times EBITDA also means creating headroom for future growth. So let’s make no mistakes. We’re saying both things together.

What is your budget expectation in terms of a minimum import price, in terms of anti-dumping duty or in terms of basic customs duty? What do you think would give the required kicker to the industry?

See, from the steel industry perspective, we have always looked for a level playing field. We have maintained that the steel industry actually has a real potential of decarbonisation and we have been supporters of coal gasification. We have been looking for beneficiation of iron ore and not to be treated at the same level as the good ore. So if there is anything that can be done to make sure that poor quality ore is beneficiated and used in India by Indian producers, any incentivisation in that direction will be extremely helpful and also make sure that resources are not wasted in the country. So, both on the coal and iron ore side, we expect gasification.

If iron ore beneficiation was incentivised in this country, not by giving additional money but simply by saying that whatever is the premium charged for high-grade iron ore, that should be eliminated or reduced significantly for low-grade iron ore, it would go a long way, so that it can be beneficiated and used as a hybrid iron ore.

We must Make in India steel for the world using a level playing field and incentivisation for using low-grade iron ore and coal gasification.

Any anti-dumping duty expectations from the budget?

It is the job of the watchdog to make sure that no dumping takes place in India. This requires setting quality standards, norms, checking to ensure that imports are not tinplate waste, it is not the substandard quality that comes in and nobody is trying to subsidise the steel that enters this country.

That is what a level playing field is. You can see the non-tariff barriers coming up everywhere including Europe; India should also protect itself.