India may see a blip in the demand for steel during the quarter when it holds the General Elections this year, but otherwise, the demand may remain strong, Jayant Acharya, Joint Managing Director (Jt MD) and Chief Executive Officer (CEO), JSW Steel, told Moneycontrol in an interview.
On January 25, JSW Steel reported a five-fold year-on-year (YoY) surge in net profit for the third quarter of the financial year 2023-24 (Q3 FY24) to Rs 2,450 crore, driven by strong India demand. While global demand has remained weak, Acharya expects it to improve in the fourth quarter of FY24.
Talking exclusively to Moneycontrol, Acharya shares his outlook on demand and prices and explains why the company has trimmed its FY24 capex to Rs 18,000 crore from Rs 20,000 crore planned earlier. Edited excerpts of the conversation:
Net profit in Q3 FY24 has grown five-fold year-on-year, but it has dipped on a sequential basis. Tell us about these numbers.
We had a very strong production performance in Q3. At 6.87 million tonnes, this was the highest production at JSW Steel, including at our Ohio operations. It grew by about 8 percent quarter-on-quarter (QoQ) and 12 percent on a year-on-year (YoY) basis. Our sales at six million tonnes on a consolidated basis were slightly lower — 5 percent lower quarter-on-quarter — but still 7 percent higher on YoY basis. The primary reason for the drop in sales was lower exports because the global markets were weaker. So the export volumes were lower. That saw a drop of about 20 percent. And imports into India impacted retail sentiment and resulted in some general destocking. The retail sales were lower. However, our sales to institutional OEM (original equipment manufacturers) and industrial customers were at their highest in this quarter. Automotive sales, renewable sales, and our tin packaging sales were at their highest ever. So we saw a growth of almost 8 percent quarter-on-quarter in our OEM industrial and institutional sales overall. Our core focus is that, and that continues to remain strong. Automotive, as I said, was the highest in this quarter. We see that going forward into the next quarter, it will be a seasonally strong quarter. Internationally, steel prices have started moving up on the back of elevated raw material prices. And we will see some part of that reflected in the Indian market in the coming months.
Steelmakers like JSW Steel and Tata Steel are riding on the strong growth in the domestic market. What’s your outlook on demand in India going forward, and will it get impacted given that this is an election year?
In Q3, imports rose by 16 percent, while exports fell by a similar 16 percent. We had a net import of 1.2 million tonnes, which ate into the domestic incremental demand quarter-on-quarter. But having said that, I think we now see better traction in the January-March quarter with respect to volumes, both from an international perspective as well as from a domestic perspective. There may be a blip during the election quarter, which may come in the next few months. But directionally, we do not see any change in the capex spend or the focus on manufacturing that the government has undertaken. We expect the momentum of India’s economic growth, as well as the steel consumption growth, to remain strong in the medium term as we go into this decade.
After your Q2 results, you had warned about steel being diverted to India because the demand was strong here. Given this backdrop and the fact that the Ministry of Steel has said that they are not looking at increasing the import duty on steel, are steelmakers concerned?
Despite a weak global environment, India is doing quite well. And it's today the bright spot among major economies in the world; our steel consumption reflects that. And we have seen very strong growth for nine months of this year. Our consumption is at about 100 million tonnes with a growth of close to 15 percent. Some part of our demand was lost to imports. Typically, trade gets diverted into India because of a weak global market, and we need to be wary about that. The Indian steel industry is investing in capex to meet the demand of the country in the years to come. The government will probably need to look at the imports and take some measures to restrict unfair trade. As long as the trade is fair and the pricing is fair, it's fine. But if it's unfair trade at predatory prices, we should be wary and take steps to control it.
Is this one of the reasons why you have reduced your capital expenditure plan for the financial year from Rs 20,000 crore to 18,000 crore?
There is no change in our focus on capex. Steel demand in India last year was 120 million tonnes. This year, we expect the steel demand to be in the range of 134-135 million tonnes, which means 14–15 million tonnes incremental growth. If we look at even an 8-10 percent consumption growth year-on-year, every year we'll be incrementally adding this 12-15 million tonnes of demand in India. So, the capacity in India should be able to meet the domestic demand, and we are quite focused on that. And our capacity expansion is on track at Vijayanagar and Bhushan Power & Steel Limited (BPSL). We will be completing our expansions of 6.5 million tonnes this year and another 1.5 million tonnes next year to reach about 37 million tonnes by FY25. The capex would get passed on to the next financial year; it is just a timing issue.
Is there greater pressure to control costs for businesses like yours given the weak global demand? How are you managing costs, and is there a plan to secure raw materials to keep a check on costs?
In this last quarter, we saw a cost increase because of higher coking coal and iron ore prices. But we were able to balance that out with a better blend in terms of coking coal in our mix.
We have been awarded three new mines at the auction in Karnataka, which will also go on stream in FY25. We are also ramping up our Orissa mines. On the iron ore side, we'll look at options that make strategic sense in terms of being closer to our locations and continue to bid for them. On the coking coal side, while we are improving our blends and looking at using leaner mixes in our coking coal coke ovens, we continue to scout for assets internationally and domestically to improve our overall coking coal securitisation. And these two remain our focus areas as we go into the next few years.
You were also looking at a stake in Canada's Teck Resources but it was acquired by Glencore. What went wrong, and what is the learning?
No, nothing really went wrong. We were a strong contender for Teck. However, I think Glencore has taken a call to look at 77 percent of the asset, and Teck and Glencore have agreed to proceed on that basis. However, we remain engaged in our focus on acquiring coking coal mining assets in international and domestic markets, as I said. We are looking at Australia, Canada, and Mozambique for newer assets as well, and we are in talks with some. Our focus is on domestic coking coal. As I said last time, we have two mining assets, which we are trying to commission as soon as possible. We will continue to look at more domestic coking coal assets to improve our blend and our raw material security in coking coal.
We are discussing a few assets, but nothing concrete as of now. We will come back to you when we have something clearer.
There's a buzz in the market that you are not really looking at sourcing coking coal from Russia on concerns that that may probably make exports to Europe a little bit of a challenge. What is your stance on it?
We have a basket that is quite diverse in terms of our coking coal or metallurgical coal procurement from across the world. We have Australia, Canada, and various other locations from which we procure coking coal, including some from Mozambique. We procured some from Russia as well for certain specific goals, which we have been doing for many years. That continues. We do not see any challenges with the mix that we are having in the blend. What we are doing continues, but we are not trying to enhance further coking coal sourcing from Russia as of now. Russian imports account for a small percentage.
JSW Group has announced that it is acquiring MG Motors. There may be some synergies with JSW Steel. Is there any plan to leverage that?
Our foray into the automotive space with a focus on electric vehicles (EVs) is being done by group companies, and that's a different business. JSW Steel will not be directly involved in that. As we progress into the joint venture and look at completing it closer to time, we will look at what synergies are there between MG Motors and JSW Steel. It could be specifically with respect to supplies of steel for their production of vehicles.
We are almost at the end of the financial year. Should we expect any M&A-related announcements from JSW Steel, in particular for the rest of the financial year?
No, we don't see that happening. Nothing is on the cards.
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