Marginal growth in demand expected in 2023: JSW Steel's Seshagiri Rao

The world economy is not growing in a robust manner so I don't expect a big turnaround in steel demand as seen in 2021, says Rao

JSW Steel reported an 88.75 per cent year-on-year drop in consolidated net profit in the third quarter of the financial year on the back of higher input cost and lower selling price. In an interview, Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel, tells Ishita Ayan Dutt that domestic demand is strong and there are triggers for revival in sentiments from China in Q4 but a stubborn inflation in many economies may prevent any major growth in world steel demand. Edited excerpts:

Domestic demand is strong but a mild recession is expected in major global economies in 2023. Given the backdrop, what is the outlook for Q4FY23?

As far as India is concerned, we are definitely seeing strong demand acceleration over Q3. The auto sector will do much better in Q4 because production is generally subdued in December and we are expecting much more infrastructure spend, particularly by the state governments.

Globally, there was a fall in prices up to December. Generally, people tend to destock in such a scenario to reduce inventory losses. But there are triggers for revival in sentiment from China which lifted prices of steel and its raw material. So restocking will start globally.

How will headwinds in major economies play out for the sector?

Inflation appears to be stubborn in many economies. Even though it’s on a declining trend it continues to rise at a lower quantum in the US and Europe. In Japan, inflation is at its highest since 1981. All these are indicating that financial conditions will become more difficult going forward. It does not bode well for major growth in 2023.

The world economy is not growing in a robust manner so I don’t expect a big turnaround in steel demand as seen in 2021. We expect marginal growth in demand and range-bound steel prices in 2023.

But flat steel prices have increased twice in January. Have prices bottomed out?

It has definitely bottomed out. Prices started going up globally and in India too. But the rise in global prices has been sharp and Indian prices are still at a discount as on date. The difference between landed cost of imports and domestic prices is at least 6 per cent

With the withdrawal of export duty is the inventory level coming down?

Last quarter, there was an accumulation of inventory to the extent of around 1,80,000 tonnes. In spite of selling more quantities in the domestic market, our inventory went up majorly due to a drop in exports. This quarter, there is an opportunity to push more volumes in the export markets. That really increases our competitiveness in the export market.

The deadline for submission of expression of interest for NMDC is coming up. Would you participate?

We will.

And would you bid for RINL as well?

Both are reasonably big-sized projects and we will evaluate both. RINL is a port-based plant and there is opportunity to expand, they have a large tract of land. The plant is reasonably big with 7 million tonne (mt) capacity.

NMDC is a 3 mt integrated facility located in the iron ore belt and also well connected by railroad. So both are worth looking at.

You are already significantly leveraged. How would an acquisition impact your balance-sheet?

We should have a structure. Even though debt to EBITDA is at 3.51x, whatever expansion or acquisitions we do, it will be in a manner so that our debt to EBITDA does not cross 3.75x.

What is on your wish list for the Union Budget?

It should be growth-oriented. The industry is looking forward to spending more on infrastructure. Specific to steel, there should be a reduction in duty on items that are not available in India and the industry has to rely on sourcing from overseas markets – such as coking coal, zinc, electrodes, etc.

Also, last time duties on steel were reduced from 12.5 to 7.5 per cent. But when the global economy is not doing well, India becomes a dumping ground. So, even if the duties are not increased, a quick redressal mechanism is required in the event of dumping.

Finally, the budget for RoDTEP should be increased to encourage manufacturing, it is insufficient.