JSW group will bring down China imports to zero in 2 years: Parth Jindal

While the firm's defence division does not import from China, its other businesses source products from that country.

As the clamour to boycott Chinese products grows amid a stand-off between the Indian and Chinese armies in eastern Ladakh, several companies have indicated they would cut imports from the neighbouring country and support the government’s self-reliance theme.

Parth Jindal, managing director of JSW Cement, said on Thursday that the JSW group, promoted by his family, would be bringing down its imports from China to zero within two years.

While Jindal was not available to share the detailed strategy to achieve this, he made the group’s plans public via Twitter. “The unprovoked attack by the Chinese on Indian soil on our brave jawans has been a huge wake-up call and a clarion call for action. We @TheJSWGroup have a net import of $400 million from China annually and we pledge to bring this down to zero in the next 24 months,” he tweeted. Sources in the company said the current Chinese imports included machinery parts for its steel, energy, and cement businesses.

“The idea is to strengthen the supply chain within the country and in that process become self-reliant to whatever extent we can. It is a directional shift that we are looking to make,” Jayant Acharya, director (commercial) at JSW Steel, told Business Standard.

Since the bloody clash in the Galwan Valley last month, in which 20 Indian soldiers lost their lives, a number of domestic companies have asserted they stand with the policy of manufacturing products locally through ‘Make in India’. “We can reduce our dependency on products from China by developing a large-scale, efficient and cost-effective domestic industrial ecosystem,” S N Subrahmanyan, chief executive officer and managing director at L&T, had said last month.

Covid-19-led demand destruction, firm input costs to impact steelmakers

While realisations take a hit, pressure on margins may intensify with input costs remaining steady.

The outlook for domestic steel prices, which has largely remained firm till third week of March, now appears bleak. Domestic steel prices, which had been trading at a premium to international prices, will face pressure as the lockdown is leading to a build up of inventories. CARE Ratings says that the performance of domestic steel makers is likely to be adversely impacted in Q1FY2021 as a result of Covid-19 pandemic and the 21-day nationwide lockdown.

Just a few days ahead of the lockdown, steel prices in the month of March corrected 2 per cent, while those in Far Eastern countries cooled off by 6 per cent on an average. This had already led to domestic prices trading at a 2 per cent premium to the landed price of steel from countries in the Far East, according to analysts' data. Apart from cooling prices, the impact of lockdown on demand and rising inventories are likely to put further pressure on domestic steel prices.

The impact on performance will not only be led by demand loss and realisations, but also pressure on margins. The latter is expected to be led by higher input prices apart from weaker steel pricing. The aggressive bidding in recent mine auctions in Odisha will keep iron ore costs high in the near term, feel analysts. The normalising situation in China means that Chinese demand for iron ore and coal will start rising, thereby keeping input prices steady. Thus, while realisations take a hit, pressure on margins may intensify with input costs remaining steady.

The start of production in China would also mean higher Chinese exports. China has recently increased VAT rebate on exports from 9 per cent to 13 per cent. This would also mean reduced opportunities for Indian exporters. Manufacturers as JSW Steel, which have exposure to exports, may feel the heat not only in Asia but in Europe too.

Further, with rising inventories and higher input costs, the manufacturers may see an impact on their working capital requirements as well.

Not surprisingly, analysts at Emkay Global say they expect steel margins to contract sharply in Q1FY21 and continue at the same levels till Q2FY21 given the onset of monsoons, which is traditionally a soft period. Analysts have been generally cutting target prices for Tata Steel, JSW Steel, Jindal Steel & Power (JSPL), even as the stocks tradrd near 52-week lows.

JSW Steel, Tata Steel see no threat to business with ArcelorMittal's entry

Both companies see ample scope for new players in the market, where steel demand is likely to grow by a good 7-8% a year as against the global pace of demand growth of around 5%.

Large domestic steel players see no threat to business even if Luxemburg-based ArcelorMittal enters the Indian steel market.

Both Sajjan Jindal-led JSW Steel and Tata Steel, the country’s oldest alloy producer, see ample scope for new players in the market, where steel demand is likely to grow by a good 7-8 per cent a year as against the global pace of demand growth which is seen at around 5 per cent.

"With the quality of steel that we produce and the technology we have along with cost efficiencies and product mix, we are quite competent. I don’t think we have to be concerned about what others will do. In fact, we are already competing with the same players in the global market at present," said Seshagiri Rao, group chief financial officer and joint managing director, JSW Steel.

ArcelorMittal has emerged as the preferred bidder for Essar Steel, which has a capacity of 10 million tonnes in Gujarat. The company faced stiff competition from Mumbai-based JSW Steel and Numetal Mauritius--led by Russia's VTB Bank.

As per industry officials, Essar Steel does have scope for brownfield expansion at the existing Hazira facility as large-sized blast furnaces with multi-million-tonne capacity, if installed, can take the capacity to 18 million tonne from 10 million at present.

“A healthy and mature competition is always welcome. We feel that with new players, the Indian steel industry will only benefit as customers will get choice. As for us, we have the needed technology, equity and capabilities to compete with them since we are familiar with this competition in the global market,” said T V Narendran, chief executive officer and managing director at Tata Steel.

Apart from Lakshmi Mittal-led ArcelorMittal, UK-based Liberty House will also be a new entrant in the domestic steel industry, as it acquired insolvent Amtek Auto and Adhunik Metalliks from among the National Company Law Tribunal (NCLT)-listed companies.

Currently, JSW Steel has a total capacity of 18 million tonnes, which it aims to take to 25 million tonnes and then to 40-45 million tonnes by 2030. Tata Steel too is focused on increasing capacity in the domestic market and aims to take it to 30 million tonne by 2025 from 13 million at present.

Meanwhile, the two domestic players are also looking to broaden their market share by differentiating its product line and transitioning from a volume-to value-based player. “We already have 60-70 per cent of our business in downstream and going ahead we aim to grow this as we aim at customised products,” informed Narendran.

To maintain a 14-15 per cent of market share, JSW Steel aims to take its downstream business to 60 per cent from the current 35-40 percent. “De-commoditising steel is our plan and we are focused on having speciality and value-added steel in our portfolio which will create value and not just volume for the company,” explained Jayant Acharya, director commercial of JSW Steel.

Business Standard