Interview: JSPL expects higher India steel prices

India's steel prices are expected to keep rising in the near term as producers look to pass on increased costs to consumers amid good demand.

An expected gross domestic product growth of over 7.5pc in fiscal April 2018-March 2019 and the just-ended monsoon rains will add to steel demand.

Steel sales are expected to be higher in October-March than during the first six months of fiscal 2018-19, Naveen Jindal, chairman of Jindal Steel and Power (JSPL), told Argus in an interview. Good monsoon rains usually result in increased rural incomes, fuelling purchases of houses, consumer durables, automobiles and farm equipment.

"Our costs have increased because of the devaluation of the rupee. All our coking coal is imported and besides that we import thermal coal, refractories and graphite electrodes," Jindal said. "Iron ore prices in India have almost doubled over the last year, while oil prices have also increased. All these costs have to be passed on to consumers."

JSPL has a crude steel capacity of 8.6mn t/yr in India and another 2mn t/yr capacity at its plant in Oman.

The company mostly manufactures long products and a smaller proportion of steel plates. It does not see much export possibility of long products with strong domestic demand, but the company exports part of its plate output to Europe, Jindal said, without giving further details.

"Long products have a good future in India, especially for railroad rails," Jindal said. The company recently won a tender to supply 100,000 rails to state-run monopoly Indian Railways, marking the first time in several decades that a private company has won such a contract.

State-controlled Sail had over the past several decades been the exclusive seller of rails to the Indian Railways. Sail and JSPL are the only two domestic producers of railroad rails.

"Supplying rails to Indian Railways was a big breakthrough for Jindal Steel. We definitely see the rail business growing. Long rails are not easy to import, while we can easily supply 260m long rails. Several rail projects have been delayed due to want of rails — we can meet this demand," he said, adding that the railways sector is insulated from a funds crunch. "There is no dearth of money for railways and they have to do a lot of track renewals and set up new tracks."

Other infrastructure projects in India may be affected by a funds crunch as governments may have fewer rupees left to spend on projects amid rising oil prices and the falling rupee. This is forcing the federal and state governments to spend more on keeping retail gasoline and diesel prices in check by foregoing excise taxes and compensating oil marketing company for subsidised gas station prices.

"The oil price increase and rupee devaluation are a double whammy for government finances. But we don't just sell steel to the government but to the private sector too, for instance, refineries. Also, real estate demand is India is gradually improving," Jindal added.

The largely cash-based real estate sector, which accounts for a large chunk of steel demand, fell into a slump following the federal government's move to scrap 500 and 1,000 rupee notes in 2016.

JSPL said it is keen on increasing export volumes of iron ore pellet but is constrained by logistics hurdles. "There are not enough rail wagons available for use to ship pellet to ports." The company expects to export around 2.5mn t pellets this year. JSPL is India's second-largest pellet producer with a capacity of 9mn t/yr.

JSPL also plans to split into three companies focusing on steel, power and international ventures, with each company likely to seek equity investments from third-party investors. "We are working on this. We have to take due approvals for this. But there is an advantage to having clear-cut businesses," Jindal said.

But Jindal will not give up management control in any of these new planned companies. "Jindal Steel is doing very well — every week we are doing better."

The company has been struggling to repay a large debt over the past few years.