The COVID-19 pandemic and consequent lockdowns have hurt the Indian economy with a ripple effect on the steel industry. With the June crude steel production reaching 6.8mn mt, a rise of 17.7pc over the preceding month, the country’s steel ministry has stated that the sector is now on a path to recovery. Against this backdrop, Davis Index spoke to V R Sharma, Managing Director of Jindal Steel and Power Limited (JSPL) to understand where the market is headed in the coming days.
By when can we expect steel demand to gain momentum in the Indian market?
Steel demand has already started picking up but train services need to start soon. This will enable labourers to travel back to their place of work and push the steel downstream activities, especially the construction segment. Most labourers hail from Bihar, which is currently reeling under floods and the government is unable to provide enough livelihood opportunities. These people, therefore, need to return to construction hubs which provide them employment opportunities.
Meanwhile, restrictions in the Delhi-NCR region have largely been lifted which will generate steel demand and help the industry return to normalcy.
International iron ore prices have been bullish, even reaching $110/mt mark on supply tightness and strong demand. Are the prices expected to sustain for long? How would it impact Indian steel prices in the coming months?
International iron ore prices are unlikely to sustain and could go into correction mode in the coming days. Prices are likely to settle at $102-104/mt cfr China, with a decline of at least $8-10/mt in the near term. Disruption in operations at most of the iron ore mines in Brazil was the reason behind bullish prices. But with mining operations back on track, prices will soon come down. Trade tensions between China and Australia was another reason behind this surge. But the disputes would resolve in the coming days.
There was a sharp rise in billet exports from JSPL in the last three months, what are drivers behind this. For how long are Indian mills likely to reap benefits from seaborne markets?
After the lockdown announcement, JSPL was in search of opportunities to deal with the low domestic demand and drafted an export plan after discussions with the trading partners worldwide.
The first breakthrough JSPL received was demand for steel plates from European buyers as the entire continent was hit by the pandemic. Steel mills had reduced their production. Subsequently, we also got a few orders for specialty blooms from France to produce rail lines.
In this period, we also exported our products to destinations like Saudi Arabia, Qatar, Bahrain, UAE, and Oman. Billets were sold in Asian markets like the Philippines, Indonesia, Cambodia, and Malaysia.
Supply from Russia and Europe had slowed and importers in China and Vietnam preferred Indian material due to lesser delivery time. For other destinations, the usual transit period of 45-50 days had increased to 100 due to delays in the issuance of letters of credit amid COVID-19.
Southeast Asian billet buyers thus explored other destinations, including India for their requirements.
This helped us build a reputation and we exported over 900,000mt of billets and blooms. Between March 22 and June 30, our billet exports have already crossed 1mn mt.
Southeast Asia and China need over 2-2.5mn mt of billets every month and are running short of supply. JSPL is supplying around 300,000-400,000mt per month.
In China, many construction projects have resumed operations thereby boosting demand for billets.
Imported scrap has been on an uptrend since the last three weeks at the minimum. Even the Indian market is witnessing a price rise in domestic ferrous scrap, direct reduced iron and pig iron as scrap collection had taken a hit during COVID-19 lockdowns. Additionally, bullish iron ore and pellet prices have also played a role.
Domestic steel prices including HRC, rebar, and wire rods have gone up by Rs1,000-1,500/mt in the last one week and are expected to move up more.
In time to come, JSPL will reduce its export orders and sell more domestically. We plan to export around 40pc and supply the remaining 60pc in the domestic market.
|JSPL’s results for Q1 FY21|
|Volume (mn mt)|
|Total steel production||1.67|
|Monthly steel exports (mt)|
We would like to know about ferrous scrap and sponge iron consumption patterns of JSPL and related volumes?
JSPL is the largest producer of sponge iron in the country. Sometimes in case of shortage, we buy sponge iron domestically. Our preference lies in consuming domestically produced sponge iron over imported scrap. Our total annual production capacity for sponge iron stands 2.2mn mt from two plants.
Imported HMS scrap price levels are at present around $280/mt cfr Kandla which is very high compared to the finished steel prices.
In the international market, a slight correction is expected in the coming days. Turkish mills have slowed purchases because prices are very high. Steel prices in areas near Turkey are also low. Moreover, with most Islamic countries, including Turkey, heading for 10 days of Eid-al-Adha holidays, trades and prices for ferrous scrap are likely to decline. International ocean freights would also come down. A correction of $10-15/mt international ferrous scrap prices is thus expected in the coming days.
JSPL’s pellet exports rose in Q1FY21 what drove this demand? Any tentative plans for next quarter?
We produce about 700,000mt of pellets per month with in-house consumption of 500,000mt. Of the remaining 200,000mt, JSPL exports limited volumes. Our exports of pellets are around 120,000-150,000mt per month.
Sponge iron makers usually prefer iron ore over pellets. This, despite production cost using pellet being Rs1,000/mt lower than through the use of iron ore. We are thus forced to export the remaining produce.
What was the driving force behind JSPL’s Q2 FY20 results?
With the domestic demand hit, exports became the need of the hour. Everyone in the company appreciated the idea of exports. We rather encourage every mill to export as it also helps the country through forex inflow.