India will be the only market where steel demand will grow at 5-6% - Mr Ravi Uppal
Economic Times reported that India will be the only market where steel demand will grow at 5-6% next year. Mr Ravi Uppal MD & Group CEO of JSPL India in a chat with ET Now, speaks about metal prices and its future prospects.
Edited excerpts:
ET Now - About a year ago, we have officially written an obituary for metals. Everyone thought that metals had entered into a long and a very long bear market. But in last one year, every metal, every major commodity is up by 50% to about 70%. So if demand numbers are so strong, what explains the underlying price movement?
Mr Ravi Uppal - It is quite right that the metal prices have recovered during the last 12 months’ time and if I have to say in overall terms, the market continues to be very volatile. The whole host of factors which are coming to bear on the prices and demand. Globally, the commodities input materials like coking coal, thermal coal, iron ore pellets, their prices have increased dramatically in the last three to four months. It is hard to believe that the coking coal prices gone up from $85 to about $310 from Australian port starting from August till about November and same is the case with thermal coal and also pellets.
So, this has led to increase in cost of the steel production and the producers have no choice but to pass on this increase in cost to the consumers but they are doing in every progressive way, in a very restrained way. As far demand is concerned, the Indian demand in the first seven months that is up to end of October has gone up by about 2.9% but the good news has been that the exports have gone up by 42%. The total production of steel by Indian producers this year has gone up by 12% but lot of it was taken by exports and also the domestic market, where the other good news was that the imports actually came down by nearly 40%. So the replacement of import by domestic suppliers, the increase in export of steel by the domestic producers and the domestic demand growing by 2.9%. All these added together has been good for the Indian steel industry.
But as I say that because the prices and demand remains still unpredictable especially after demonetisation. I think construction sector in particular has been quite affected and therefore it is going to affect the offtake, at least in the short term. I absolutely certain that demand should recover in India. If you look at the world steel organisations forecast, they say Indian market is the only one which will continue to grow at a rate of 5% to 6% even through 2017. So all in all, the scenario looks positive. But as I said there is huge amount of fluidity in the market both in terms of demand as well as prices.
ET Now - But purely on the basis of MIP much needed relief, what is your take on how beneficiary this could be along with the demand revival that you are seeing on ground?
Mr Ravi Uppal - Well MIP started on 5th of February 2016 and gradually the list have been reduced for two reasons. Number one, the prices have firmed up internationally and they were little more than the MIP prices that we did and the second thing was that the government has replaced the MIP in case of several items by anti-dumping duty.
For example, if you look at plates, coils, wires, rods, all these items they are covered by anti-dumping. So if you recall that the original list was 171 items and then in October government had extended the MIP from out of these on about 66 items up to 5th of December and now yesterday the announcement said out of 66 items, only 19 will be covered by MIP and other 19 have been covered by anti-dumping but about 28 items have been taken out of the MIP listing on which there is no extension and that basically covers semi-finished steel, slabs, bars, rods and TMT.
Government’s line of argument is that so far the import of these items have not been much and they do not built up a case for anti-dumping, but my worry is that if the prices, if the Chinese go aggressive and they want to take this route, they surely can, they can bring in slabs. So, let us just hope they do not do that but I think the ministry of steel and the government is watching the import trend very actively and I am sure should they see any kind of adverse trend in imports, I am sure they will come down and take the necessary measures.
ET Now - Whereas one side metal prices have also gone up but there has been a huge uptick in iron ore and metal ore prices so in terms of realisation do you think precious little has changed for JSPL because demand are not very strong, demonetisation will have its own effect in terms of sales and then you have to deal with the uptick in rising raw material prices?
Mr Ravi Uppal - Well you are absolutely right that price of raw materials have gone up, whether you take coal component or you take iron ore, all of them have gone up and including the ferro alloys have gone, ferro manganese, vanadium, all these metals, nickel, zinc etc so the overall cost of production of steel whether you take the base grade or you take the alloy grades they have all gone up. So as I mentioned earlier the manufacturers have no choice but to pass on the cost to consumers but I think the manufacturers are very restrained, very cautious in passing on, they are trying to partly offset the increase in cost through better operational efficiency and trying to see how the minimum cost can be passed on to them.
And as the demand is concerned I just mentioned that the domestic demand for the domestic producers the demand has been increased by the fact that exports have gone up by nearly 42%, imports have come down by 40% which means the imports are being substituted by the local market, plus there is an organic growth of domestic market by 2.9%. So if you add it up all together the increased exports and less imports plus 2.9% growth, I think that has come out well for the Indian manufacturing.
But the only point of worry as of this moment how soon the construction market will recover because that has gone in for a big slump which basically affects long products like TMT re-bars, low end sections and structures etc. So I think the high end products like plates, coils and rails, those kind of sections may not be that much affected but anything to do with the construction is something that is affected in the short term. Well let us just hope that this subdued demand does not last long and the market stages some kind of recovery.