It has never been so good for steel companies. Are you surprised by the underlying demand and the pricing trend?
I am not exactly surprised but happy that the situation is like this. We would expect the demand to continue for some time. There are reasons why steel prices are among the highest in a decade. One, there has been supply side constraint even in the second and third phase of Covid, which has impacted the ramping up of capacities in certain parts of the world. Secondly, China is expected to close down some inefficient units because they have a target for reducing carbon footprint. The demand pick up in the auto, construction and white goods sectors as well as the government policies in India, China and even in the US, has led to creation of demand. Third and most important, raw materials supply constraints have led to rise in the prices of iron ore. All these factors are driving steel prices and the demand as well.
Do you see enough visibility for the next one or two quarters?
The next one or two quarters are likely to remain the same. As prices go up, many unviable and closed capacities may open up, increasing supplies. Once this happens, supply constraint would be eased and that in turn will put downward pressure on prices. As globally, Covid is more under control and the vaccination drive is on, we would see some pick up in production also which have been right now hampered by the all around Covid situation.
How are you looking at capitalising the strong steel environment and steel price to improve SAIL’s balance sheet?
Our focus right is on reducing our leverage position. We were highly leveraged. In April, the borrowing had reached around Rs 52,000 crore. By December, we had been able to reduce that to Rs 45,000 crore and as of March 31, 2021, debt is a little over Rs 35,000 crore. So a total focus on the balance sheet, coupled with increased volume thrust on increasing our efficiencies, reducing cost and techno economic improvement should help us improve our balance sheet and leverage position.
Is the current level of about Rs 35,000 crore of debt a comfortable position for SAIL?
We need to bring it lower because we want to start our next phase of expansion also. We have desktop study done. We have the land bank with us. So the moment we are able to reduce it by a few more thousand crores, we are planning our next phase of expansion.
Why is the conversion cost for SAIL so high?
One of the main reasons for higher costs is wages and salaries. At higher volumes, this would naturally go down. We cannot do too much about reducing our wages and salary bill but yes we could reduce our man power. We are not recruiting as much. So with a more balanced approach to recruitment and also increasing our volume, we would reduce our cost of production and our conversion cost.
Where do you see employee cost as a total percentage of your costs settling in the medium term and in the long term?
It would be difficult to say. Right now, we would not be able to reduce too much; the reason is new wage negotiations are going on. So the amount by which we would increase the wages would have an upward impact. At the same time, since the manpower would reduce and the volumes would increase, that could offset salary hikes.
If steel prices go up by Rs 1,000 per ton, does it have the potential to move your EBITDA by about 10%?
I have not done the calculation and so I would not be able to say right now but the movement of prices by Rs 1,000 would have a big impact on our EBITDA as it would entirely add to EBITDA.
It has taken slightly longer than expected but the expansion plan to take steel capacity from 13 million ton to 21 million ton is done. What is the plan for ramping up the utilisation?
If you see the annualised crude steel production, in March, we have more or less reached our crude steel capacity.
Would SAIL be thinking on lines of exporting more?
Our first aim is to meet the demand of the domestic market and also have a strategic presence in the export market. We would continue to do the same.
How exactly do you think would the next three years be different for Steel Authority from the last three years? In the next three years, how do you see things optically and dramatically changing?
In the past, the cycles have been very small. So, 2018-19 was a good year, 2019-20 was not and then in 2020-21, the first six months or three months were not great but then it just picked up. So for the next three years, I would expect the demand to continue the same way. Major capacities are not coming up other than in India. So I would expect that the demand and prices to remain strong. So far as SAIL is concerned, with a lower leveraged position, we would plan out our next phase of expansion.