For long term sustenance, it is essential that appropriate policy measures be in place for value adders like steel plants for requisite and stable raw material linkage, observes Dilip Oommen, CEO & MD, Essar Steel India, while speaking to Sumantra Das.
How do you see demand and pricing power for steel panning out in 2013-14?
We expect a demand growth of 5-6 per cent in FY 14. There will be gradual recovery from the sluggish market that existed last year, when it grew at a measly 3.3 per cent. No strategic shifts are expected in the pricing power of steel makers. However, the room for absorbing raw material and other cost increases such as rail freight hike is limited and will have to be passed on to the consumers.
Are you considering consumer markets absorb these price hikes without affecting demand?
As expressed earlier, price hikes will be reflective of cost push.
Being an integrated player, do you think your company will be achieving the target in the current situation?
While the market situation is challenging, it is to be noted that India is one of the few countries that has witnessed growth in demand, albeit only 3.3 per cent, last year. At Essar, we have been focusing on producing high value-added steel for niche application, import substitute products and products that have demand globally. These strategies will enable us to do well even in a gloomy market.
How far regulatory issues, moderation in industrial activity and hardening interest rates impacted the industry?
All the factors that mentioned above have contributed to the slowing down of demand for steel. These factors have not only resulted in lower investment within the industry but have also slowed down the demand for cars and other consumer durables for which steel is a critical input.
Is lack of domestic raw material hampering business of non-integrated players? How are these players thinking of alternative ways?
For companies like us, who have integrated the entire value chain except for raw material ownership, the non-availability of raw material especially iron ore and the volatility in pricing brought about, the monthly pricing regime is a major concern. One alternative way of managing this is to focus on new technologies such as beneficiation to make use of low grade material that is widely available but otherwise not usable. However, for long term sustenance, it is essential that appropriate policy measures be in place for value adders like steel plants for requisite and stable raw material linkage.
Indian steel production is set to take a massive leap over the next four year. Given the slow progress in infrastructure projects, will consumption growth fail to match the capacity growth?
In the short term, the overcapacity will persist as a lot of integrated players are ramping up capacity while the demand is depressed. However, we expect that drivers for steel growth like infrastructure spends will eventually be put in place. What can be done to alleviate the situation is to curb imports by putting safeguard duty wherever appropriate and review FTAs/CEPA policy.
What are your plans to deal with the volatility in coking coal prices? Given that international miners are pushing for contracts of increasingly shorter duration, how can steel producers hedge against this volatility?
One way is to securitise your raw material requirement. The other is to hedge carefully.
What are the other issues that Indian steel industry is facing today?
Steel imports from FTA countries, lack of raw material linkage to integrated steel plants, regulatory hurdles, delays in environmental clearances, raw material logistic issues especially mining and railway clearances and land acquisition for greenfield expansion are issues that pertinent issues for the steel industry that need to be addressed on priority.
Will cheaper steel imports create more pressure on domestic companies?
Cheaper import is a matter of concern for Indian steel makers. All the major steel producing countries like the US, Indonesia, Thailand, and Russia have raised some barrier or other to contain imports. However, India has signed Free Trade Agreement (FTA) with Korea and Japan and the imports from these two countries now account for over 80 per cent of total imports into the country. The cost structures in these countries are different than that of India. For eg, the finance cost in Japan is in the region of 1-2 per cent whereas in India, the interest cost is in the region of 12-14 per cent. Such skewed cost structure puts Indian steel producers at a disadvantageous position. We have taken up this issue with the government. Of very high concern is talk of having such arrangements with European Union as well. This certainly should not include steel.
Can you elaborate on your expansion plans?
We are completing our Odisha project as planned. This includes a 12 MTPA pellet plant at Paradip, of which 6 MTPA is already operational, a 12 MTPA beneficiation plant at Dabuna and a 253 km slurry pipeline linking the two. This will be over by the end of FY 14. We have plans to scale this up into an integrated steel plant at Paradip but this is linked to pre-construction requirements like mines allocation and land acquisition being met.