Even as the government works with lenders to bail out debt-laden steel companies, the sector’s fortunes seem to be brightening as capacity utilization improves and exports pick up. Essar Steel has seen year-on-year output increase 60 percent in the nine months ended December 2016 as demand for steel is seen to be picking up. In an interview with Chillicious, Essar Steel CEO and Managing Director Dilip Oommen, explains what’s in store for the sector.
Essar Steel’s output for the month of February is up in double-digit YoY even though demand is tepid in India. What is the reason for this sharp output increase?
Various measures taken by government of India have resulted in curtailment of dumped imports leading to stability of domestic market and improved performance all the steel companies. Also, the inventory level with the customers have come down in Q4FY17. Industrial activity is on the rise since January. Essar Steel has ramped up its production due to better utilization of its upstream and downstream units. Moreover, all our sales are backed by firm orders and hence our production does not end in inventory.
China has cut production further this year. How do you see this impacting Indian steel makers like Essar?
Our observation is that China has cut production due to lower domestic demand in China and also that many countries have raised trade barriers against Chinese imports. Further, China has also publicly announced its intention to cut down the capacity. This is beneficial for countries like India. It opens up more export market for us.
What is Essar Steel’s debt currently and do you see a change in the cycle impacting the company in a beneficial way?
The long-term debt of Essar Steel is Rs 31,500 crore. The increased capacity utilization backed by higher allocation by government of India for infrastructure & rural spending, GST implementation will have a beneficial impact on the demand for steel, which will benefit the steel industry including Essar Steel.
While domestic demand is up 3 percent YoY production has increased in double-digits. Does this mean exports are driving production?
The demand growth for overall steel industry is at 3 percent. However, flat steel is growing at 4-6 percent. Due to new capacities coming online and increased capacity utilization by existing steel mills, the production growth is higher than demand growth. We ensure that after meeting the domestic market needs, the surplus is exported. Thankfully, there is a global demand.
What markets is Essar focusing on for exports?
We export to over 25 countries thus diversifying our export base. It is not prudent to focus on any one market. This helps in spreading geographic risk.
Why is the demand for flat steel products weak in India?
The demand for flat is steel is growing at 4-6 percent. We expect it to gather momentum once the government’s planned expenditure on infrastructure takes place. In defence and infrastructure alone, the Budget allocation is over USD 80 billion .
Has Essar undertaken price hikes for its products in January and have these been rolled back due to weak demand?
Our prices are always aligned to market prices. Hence it is dynamic and is linked to input costs like coal, coke, iron ore gas etc. The demand weakness is also partially due to effects of demonetization and buildup of stocks in December. Now, the market is witnessing demand pick-up.
What about steel price trend globally and is it likely to sustain?
Given the all-round demand pick-up globally, it is reasonable to expect that the current price levels are sustainable.
Value-added steel was an area of interest at one time. How much of this segment contributes to the overall production?
We continue to focus on value-added grades. Being a versatile steel producer, we are capable of offering over 300 grades of steel to cater to varied industry segments. Value-added products account for over 60 percent of production. We have now identified defence as a niche area and have developed steel grades required for the Indian Navy & Army. This is also in line with the “Make in India” initiative of the Government of India.