1. Home
  2. >

India is clearly back on growth path


Seshagiri Rao, JMD and group CFO, JSW Steel Ltd, India’s leading private sector steel maker, shares his insights on the domestic market in an exclusive interview with Rajesh Kulkarni.

What has been the impact of the global downturn on the domestic steel market?
India has been less impacted by the global downturn. Even though we suffered when the global crisis hit us in Sept-Oct last year, we have witnessed a revival since December. The numbers for the six core sectors for May 09 are also encouraging.

The World Bank has revised its World Economic Outlook 2009-2010 growth outlook for India from 4% to 5.5%. So India is clearly back on the growth path.

This revival has been initiated by government-aided projects since January 2009. With the downward revision of interest rates and improvements in the liquidity scenario, we are also seeing a revival of housing projects. It is crucial for steel companies that these user industries do well.

What according to you will be the key factors driving steel revival in India?
Today our major strengths are our rural and semi-urban areas. 70% of India’s population live here and they account for nearly 50% of the consumption.

They are the main drivers for demand. Most companies in every sector are now targeting them since the demand potential has been largely untapped. We have also rolled a retail concept, JSW Shoppe to tap this market segment.

The existing 50-odd outlets account for sales of nearly 1,000 tonnes per month today. We plan to increase the number of outlets to 200 by 2010.

What is the extent of JSW Steel’s exposure to the infrastructure & construction market?
The infrastructure and construction together account for about 50% of steel consumption in India. About 32% of our product mix is in long products which are aimed at both these sectors.

We produce TMT bars, rods and billets which are used in the construction industry. On the housing front we produce galvanised coils which are used for roofing purposes. Overall more than 50% of our total product mix targets the infra and construction sectors.

We have supplied to several infra customers like the Delhi Airport besides key railway, power and defence projects. Leading construction companies have also sourced their steel requirement from us. We have also collaborated with pipe majors like PSL, Maharashtra Seamless and Punj Lloyd for the supply of steel for government aided projects.

What is your assessment of the potential impact of the government’s infra thrust on the steel industry?
Infrastructure and capital goods are the two major steel consuming sectors. Both are majorly driven by investments. India produces approx 55 MTPA of steel of which 20MT is flat steel and about 35MT is long steel which is used extensively across construction, infra and housing projects. Hence the government’s infra thrust is a good sign for the steel industry.

How do you plan to leverage this demand potential?
As a company we have seen this opportunity ahead of others. We were a flat steel producer till a few years back. We realised that the investments into the infra sector would stimulate demand for long products. Today approximately 32% of our existing total capacity is devoted to long products.

Strategically we have decided to augment our basic steel-making capacity in India in anticipation of the huge demand. We have opted for value added products and backward integration while continuing to expand horizontally in India across both long and flat product categories.

We also plan to increase our capacity to about 11MTPA within the next two years in our endeavour to be a 32MTPA player by 2020. We have also identified two more Greenfield projects in West Bengal and Jharkhand to drive our expansion plans.

What is the prevailing status of your US operations given the negative growth in the global steel markets?
The US oil & gas infrastructure sector was expected to be very strong when we made the acquisitions in 2007. It was then the crisis hit us. Oil prices crashed from a high of US$147 to below US$40 which caused many projects to be put on hold. That made a huge impact on the capacity utilisation of our plant there.

Today most US steel companies are working at about 40-45% capacity utilisation. Currently because of the lack of orders our plant is working at about 10-15% capacity utilisation.

But over the last couple of months we are seeing a demand revival. We are also actively looking outside the US and bidding aggressively for pipeline projects in places like Latin America, Mexico, Middle East and Africa.

We plan to work towards increasing our capacity utilisation to about 30% by March 2010.

There is pressure on steel players to reduce prices in view of the fall in prices of key raw materials like iron ore and coking coal complemented by a reduction in railway freight rates?
Steel prices have already fallen by 60% compared to their peak. The long term prices of raw materials like iron ore and coal are still higher. In 2008 the price of iron ore (long term) was about US$51 today it is US$61.

Coal was priced at US$96 per tonne last year, increased to US$305, today the long term price is about US$128 per tonne, which is higher than its 2007 level.

The reduction in raw material prices is not in the same proportion as finished goods prices. The prices of finished goods are not enough to cover not just the cost of production but even the interest and depreciation.

There is a 30% cut in steel production across the world today. There is a huge pressure on the margins of steel companies. Therefore going forward I do not see a significant correction in steel prices.

Most Popular


Olympia Group announces to build up 1.1mn sq-ft greenfield it park in Guindy
The project will have a total investment of about Rs 750 crore


Vital pre-monsoon building works resume in Maharashtra
The state government has permitted pre-monsoon work by BMC and other agencies

Latest Issue

Sept 2020
01 Sep 2020