Steel prices have gone up "too quickly" and a near term correction may be in the offing, says JSW Steel's Seshagiri Rao. In an interview with CNBC-TV18, Rao pointed out that international steel prices had gone up 80 percent since their February lows, without any correction taking place on the supply side. He also talked about the government's recent decision to impose minimum import price (MIP) on steel products, which has protected Indian companies from the onslaught of cheap imported steel, much to the chagrin of local consumers. Seshagiri, however, said that MIP was needed and users should focus on the long-term picture instead of trying to take advantage of short-term, unsustainable prices. "In the case of the pharma industry, prices went up once the local bulk drug industry was wiped out," he said.
Steel prices have gone up "too quickly" and a near term correction may be in the offing, says JSW Steel's Seshagiri Rao. In an interview with CNBC-TV18, Rao pointed out that international steel prices had gone up 80 percent since their February lows, without any correction taking place on the supply side. He also talked about the government's recent decision to impose minimum import price (MIP) on steel products, which has protected Indian companies from the onslaught of cheap imported steel, much to the chagrin of local consumers. Seshagiri, however, said that MIP was needed and users should focus on the long-term picture instead of trying to take advantage of short-term, unsustainable prices. "In the case of the pharma industry, prices went up once the local bulk drug industry was wiped out," he said.
A: As far as the minimum import price (MIP) is concerned, MIP has been introduced by the government of India only to stop predatory inputs. They are coming in the form of dumping causing injury to the domestic industry. So, it is very much essential in the interest of both the users and also steel producers in India to stop such type of dumping. So, this is the provision which is there in the WTO regulations so it is not unusual to stop such type of things through measures like MIP, anti-dumping duty, countervailing duty or safeguard duty. So, any users have a concern in that I think they need to understand the longer perspective and also sustainability of the entire supply chain. I think we need to look at from that point of view. As regards to international steel prices they started looking up. They have gone more than 80 percent right now. In our view I think the prices at which it was getting sold in the month of February, they were not sustainable, not only for Indian steel producers even globally. That is why we are seeing some uptick but they have gone too fast and too quickly. They may not be sustainable at these current levels because the supply side we are not seeing a big adjustment which should have happened is not happening. December there was a lower production in the global steel industry; capacity utilisation was below 65 percent. Now we are seeing more than 66 percent capacity utilisation and China has produced in the month of March second highest ever production. So, supply side I think huge amount of steel coming into the market therefore whatever pricing scenario we are seeing globally, I think some correction to the downside can happen in our view.
Q: As I pointed out earlier also, the consumers are not that happy with the MIP. So, how do you think things will pan out, it is still sub judice, case is being going on in the Delhi High Court, so, what is the scenario on that, what will be your strategy to counter that if at all things don’t go in your favour going ahead?
A: We should not look at short-term – that is what we are trying to explain to our customers and users. If they have access to cheap raw material which is not sustainable like steel for producing further value addition. Once domestic steel is not sustainable then they will be taken for a ride by way of increasing the price as happened in the pharmaceutical sector where bulk drugs have happened in a similar manner, where there was a dumping of bulk drugs in India. Domestic bulk drug industry is completely closed, after that the prices have gone up by 11-12 times in the case of imports. So, now there is no point of pharmaceutical industry talking about bulk drug industry. The same situation should not happen in the steel sector. So, accessing cheap raw material at predatory pricing or unsustainable prices for a shorter period of time should not be taken into account if you have to see a long-term sustainable industry and supply chain; that is what we are trying to explain to the industry. So, whatever government of India has taken steps, I think that is in the interest of the country and the interest of the entire supply chain in the steel sector.
Q: Recently we saw NMDC increasing the ore prices so how do you see that having a hit on your margins going ahead?
A: As far as the increase in the prices of iron ore, it should be looked at from the perspective of global iron ore prices but what is important to note is that when the iron ore prices came down from USD 55 to USD 35, we have not seen NMDC reducing the fine spaces in the market. Whereas the global prices when they started looking up and we have seen the price increases in the domestic market. That is a worrying factor. The prices have to be done both downward and upward in-line with international prices so that is not happening as far as NMDC is concerned because of the monopoly conditions which are there in the iron ore sector. Particularly in Karnataka if we look at, out of the total 24 million tonne of iron ore that is being produced right now, 50 percent is by NMDC. So, therefore I think this aspect is to be taken into account in order to have again a sustainable steel industry in India. The strength of Indian steel industry is the domestic iron ore. So, domestic iron ore pricing is very important for the long-term sustainability of the steel sector. So, whenever global adjustment in prices are happening the Indian iron ore industry also should accordingly do it thereby we can have very sustainable industry.
Source: Moneycontrol