JSW Steel, India’s largest private sector steel producer, posted a four-fold rise in net profit in a quarter marred by monsoon and trade uncertainties. However, the company’s joint MD and CEO Jayant Acharya tells Sambit Saha of The Telegraph the second half is expected to be even better, with the GST rate cut kicking off a strong sales momentum. Acharya expects domestic prices, which are at a discount to import prices, to inch up after bottoming out in September. He also observed that the proposed 12 per cent safeguard duty is inadequate. An edited excerpt:
The second quarter sales are up by 10 per cent compared with Q1 and yet the PAT was down. Is this a reflection of the downward spiral in prices?
The drop was a result of the steel price correction. For our mix of products, it had corrected by close to ₹2,700 a tonne. We partially made it up through cost reductions, better product mix and higher volume. There was also a foreign exchange impact of ₹734 crore in Q2.
Despite being a seasonally weaker quarter, due to the monsoon, apparent steel consumption in India went up and solidified JSW’s sales. So, the demand was good?
It was very good; we had the second-best sales ever and also the highest July-September sales, which, according to me, was a very big positive. We were also able to improve our value-added mix. The underlying momentum in volume, despite uncertainties in the market and the prolonged monsoon, has been encouraging, although we did a little bit better than the market.
And what is driving this growth?
I am seeing all segments growing very well — alloy steel, long product, cold rolled steel and sales to the auto sector. And the consumption story, which is playing out post the GST rate cut, would also help.
The second half is always seasonally strong for steel firms. What is your outlook?
GST, income tax and the RBI repo rate cut have all improved overall sentiment and discretionary spending. I am very optimistic that the consumption story going forward will be a real positive tailwind for India. Two-wheelers, three-wheelers and tractor sales are up. It gives you hope that yes, we are looking at a better H2. I’m optimistic we’ll meet our guidance for sales.
Jayant Acharya
So, can one expect the prices will hold or probably inch up from here?
In long products, the price drop was far more acute than in flats, especially the construction steel. We are seeing an increase already in October. In flat steel, coated products have gone up and we are expecting the other flat products to go up too. The prices bottomed out in September.
But Indian mill prices are at a discount to the imported prices. Why this anomaly?
Yes, the discount is between 8-10 per cent now. The prices went up in the April-June quarter by ₹3,200 a tonne in India. And from June, there were uncertainties due to tariffs. Then the price dropped in July. It was initiated by a seasonally weaker quarter, global uncertainty and higher imports. New supplies came from steel mills during H1. I think that is probably why we have seen lower pricing. But I think it’s gone to an irrational level. This will come back to some rationality as we go into H2.
India is recommending a 12 per cent safeguard duty. But the EU just proposed 50 per cent and the US is already at 50 per cent. Do you feel this 12 per cent is adequate?
No. While this 12 per cent has certainly been very supportive for the industry, the uncertainties around tariffs and what the rest of the world is doing, I think this may need to be looked at, also in any other form of trade measures.
After finishing safeguard duty for 8 years with 25 per cent duty and a quota, the EU is not only trying to increase the duty, but is also trying to halve the quota. What does it indicate?
It indicates they are feeling the threat of trade diversion due to tariffs, which are being imposed in the rest of the world. The action is suo moto from the government, without any need for the industry to prove any injury being caused to them, which we had to prove in our application.
Steel is a capex heavy industry and it takes four years to build capacity. A longer visibility of the policy will be helpful. Otherwise, the decision-making naturally gets impactive. I believe some anti-dumping measures are already on the way. India has a huge opportunity to grow, economically as well as from a steel demand perspective. We should just ensure that we have a level playing field and do not allow dumping into the country.
There will be CBAM in Europe. How do you plan to deal with these challenges?
We are lucky to have a strong domestic demand. I do not see much capacity coming up now in the next two years . Demand may go up by 25-30 mt. Domestic demand will be in a good state to absorb whatever volumes you need (to sell).
Second, the geopolitical challenges in the world are expected to ease. If that happens, then you will see a lot of reconstruction demand. Europe and West Asia will be beneficiaries. To that extent, we will see alternative demand springing up in the world. And that will also be a positive.