“The Chinese Are Dumping Steel At Unthinkable Prices” March 2018 issue

JSPL’s steel plant in Raigarh (Chhattisgarh) is the world’s largest coal-based sponge iron manufacturing facility with a total capacity of 3.25 MTPA of finished steel.

“The Chinese Are Dumping Steel At Unthinkable Prices”

Ravi Uppal , Md & Group Ceo, Jindal Steel & Power Ltd.

Jindal Steel and Power Limited (JSPL), a behemoth in steel, power and mining, has been under pressure due to falling steel prices following the oversupply from China. Ravi Uppal, Managing Director and Group CEO, JSPL, in an interaction with The Dollar Business, expounds JSPL’s expansion strategy across verticals and explains the present predicament of the Indian steel industry.

Interview by Sisir Kumar Pradhan | January 2016 Issue | TheDollarBiz

Ravi-Uppal-jan-2016 exclusive interview

The Dollar Business (TDB): Please give a brief outline about JSPL’s steel business in domestic and international markets.

Ravi Uppal (RU): JSPL has been a steel and power conglomerate from the past 25 years, and over the years, we have expanded our footprint in both domestic as well as international markets. We have expanded our reach not only in marketing our products but also sourcing of raw materials. You must be aware that the steel industry is going through a low point now. The steel market reached a peak between 2007 and 2012 and during those high demand days, availability of raw material became scarce and expensive. At that time, we had to look forward to sourcing raw materials outside India as availability of those materials was very limited in the country. Gradually we ventured out to the overseas market to secure some mines to ensure uninterrupted raw material availability to our plants. We have procured coking coal mines in Australia and Mozambique, and iron ore mines in Cameroon. We are also involved in the mining of metallurgical grade anthracite coal in South Africa. So our overseas ventures are largely to gain both market access and ensure raw material security. 

In India we have iron ore and coal mines. We are also sourcing mines under a long-term supply agreement from a mining company in India. We have steadily grown our exports, but now our exports have been badly hit because of recession in the global steel market. One reason for the plunging steel market is because the Chinese are literally flooding the market by dumping steel at prices that are simply unthinkable.

TDB: Indian government has increased duty on steel import, which is largely going to affect imports from China. How have Chinese steel makers been able to keep prices so low? Are they simply efficient or are they getting incentives from the Chinese government or is it because of oversupply of steel in China?

RU: Let me put across the factual prospective. China has an installed steel capacity of about 1.2 billion tonne, which is more than 50% of the world capacity. They have been producing close to 800 million tonne of steel per annum. Until a few years back their domestic demand was very strong. They were consuming an average 757-775 million tonne of steel per year because their infrastructure was undergoing a major growth. However, their domestic steel demand has started to come down, due to which they have more steel to offer in the international market and they have been driven by the pressure that they have to keep the industry running, and they are also getting support from the Chinese government in the form of financial incentives, and other inputs at concessional rates. As the supply of steel is much more than its domestic demand, the Chinese have started to dump steel in overseas markets. Their major export markets apart from India are Middle East, South East Asia, Europe, among others. Some countries, including the United States of America, Canada and Brazil have already put restrictions on import of steel from China. Markets like Asia, Middle East, Africa, and Eastern Europe, have been virtually flooded with Chinese steel.

China’s total steel exports reached an all-time high in September 2015 when it exported about 13.2 million tonne, and based on that number, if we take an annual projection, it comes to around 170-175 million tonne of exports. If we compare that number with ours, India has a total installed capacity of just 114 million tonne.

The Indian government doesn’t provide incentives like the Chinese government does

TDB: Since the Chinese government is providing incentives to their steel manufacturers, have Indian steel manufacturers approached the Indian government for additional incentives and support to combat the onslaught?

RU: The Indian government doesn’t provide incentives like the Chinese government does. We have a free competitive market. We told the government that there is no level-playing field. In China the cost of electricity is cheap, interest rates on bank loans are lower, and they get so many other incentives. Another major advantage for Chinese is lower cost of logistics compared to India. For example, it takes $12 (approx. Rs.800) to ship 1 tonne of steel from Shanghai to Mumbai, whereas the freight cost to move 1 tonne of steel from Odisha to Mumbai is about Rs.3,500 ( approx. $53). Hence, the cost of logistics within India is five times more compared to the logistics cost for importing from another country. If the government is serious about making ‘Make in India’ successful, they have to provide a level playing field, and until you are able to do that you must protect your industry. Because in the long run, India’s infrastructure will grow only with Indian steel, as has been the case with other countries. China – like Japan, South Korea, and North America – built its infrastructure using domestic steel.

TDB: Currently, 60-70% of domestic steel demand in India is fulfiled by imports from China. If China continues to dump its steel in India, how will it impact the Indian steel manufacturing industry and the economy?

RU: Steel exports from China have risen by about 52% year-on-year in the first six months of 2015. Now, China is exporting to India at a rate of 1.1 to 1.2 million tonne a month, which basically translates to 12-14 million tonne of steel on an annual basis, which means the total steel they are exporting is more than the annual production capacity of any single major Indian steel manufacturer (JSW – 12.63 million tonne of crude steel per annum, Tata Steel – 9.7 million tonne, SAIL – 12.8 million tonne and JSPL – 4.5 million tonne).

We have made a representation to the government that duties on steel import must be applied across the board, including semi-finished and finished products and we must have anti-dumping safeguard duty. We have also requested the government to fix a floor price, for duty calculation of any steel material that is imported. Otherwise China can even send steel at a rate of $20 per tonne in a bid to minimise custom duty.

Jindal Power Ltds power plant in Tamnar of Raigarh district in Chhattisgarh has production capacity of 3400MW Jindal Power Ltd.’s power plant in Tamnar (Raipur district), Chhattisgarh, has an installed production capacity of 3,400 MW.

TDB: There is a group of steel importers which argues that if steel from China is available at a cheaper rate, then imports should be allowed and the price benefit should be passed on to Indian consumers. What do you have to say about this?

RU: That’s entirely wrong. In case of steel users, for example the automobile or white goods industry, steel prices have gone down by about 30%. If reduction in raw material prices is being passed on to consumers, by now, car prices should have already fallen by 30%. Not a single manufacturer has passed a penny to end users. We have to look at the long-term health of India’s steel industry, which is a core industry. The total turnover of steel industry is more than the total budget of Indian Railways. Indian Railways makes up only 1.4% of the GDP, whereas the steel industry in India makes up 2.5%. So it is an important sector which the government has to protect. Moreover, if the steel industry goes down, it will adversely affect the mining and logistics sectors. If we take the example of Indian Railways, a very large percentage of their goods movement is related to steel import material or outbound finished product. Similarly, the health of steel industry will have an effect on iron ore, limestone and thermal coal mining.

TDB: International metal prices are set to fall further. How will it affect the Indian steel sector?

RU: In the last one year, steel prices have come down by nearly 30% and Indian steel prices are very much in line with international prices. If prices are fair, then there is no harm in them falling. But some countries dump the material to kill the industry of another country and that is unacceptable. China is selling the product at lower than variable cost.

TDB: In the next two years, how do you see demand for steel in domestic as well as the international market?

RU: There is a good future for steel in the domestic market. In the last six months, the demand for steel has increased. Growth in infrastructure sector – like ports, airports, flyovers, and rail – requires steel as a key element for construction. A bulk of our material (about 80%) goes to the domestic market, but we are also likely to do well in the international market. We would like to export more and produce more in the Oman plant. But that is a challenge at the moment because for that to happen, international demand has to rise, and China needs to consolidate its production capacity. From our Oman plant, we serve the Gulf countries and Africa, but market prices there are also affected due to dumping by China.

TDB: Tell us something about your entry into the rail sector.

RU: JSPL is more focussed on long products as compared to flat products. Most of our competitors are more focussed on flat products. Railways is one sector which should grow as the infrastructure sector grows. Infrastructure sector needs more long products. When the economy develops, the automobile, white goods, and electrical industries also grow – that’s where demand for flat products grow. I think we are on the sweet spot of economic development and within that, we think as the infrastructure sector grows, railway expansion will take place and it will propel demand for steel. We are the technological leaders in long products, and we are the first in India to produce Long Head Hardened Grade rails, which are basically used in building high-speed freight and passenger corridors. It is also used in installing heavy structures. I am optimistic that all these business segments will carry a lot of promise of growth in the next couple of years. We are supplying rails to the Delhi-Kolkata freight corridor and other corridors which are coming up. We are also supplying rails to metro rails. Most of the modern high-rise buildings are made of steel structures, where our steel is used.

]JSPLs steel plant in Raigarh is the world's largest sponge iron facility located in Chattisgarh India JSPL’s steel plant in Raigarh (Chhattisgarh) is the world’s largest coal-based sponge iron manufacturing facility with a total capacity of 3.25 MTPA of finished steel.

TDB: What are the major challenges for the power sector in India?

RU: The health of power sector needs to be restored because 85% of the power which is distributed in India is by state distribution companies (DISCOMS). The honourable Power Minister has announced measures to restore the health of the state utilities by saying that 75% of the debt will be taken care by the state and for the balance 25% they can issue bonds. But we have to make sure that while we try to clean up the past, we must find a sustainable solution for the future. Net price realisation for DISCOMS should be higher than their production/purchase cost, and there should not be any cross subsidies. Once that happens, power distribution agencies will be able to buy more power from power generators and will be able to distribute without making losses.

TDB: In the coming years, will JSPL continue to operate only in steel, power and cement sectors, or is there a plan to diversify further?

RU: All the business verticals – steel, power, construction material and solutions, cement, and mines and minerals – that we are in, have a lot of synergy amongst them. We need power to run the steel business, that is why we are in power production. Our mining sector takes care of raw material availability. We are also into construction material solutions, hence we are into cement manufacturing and lot of our by-products from steel plants are used as raw material for cement production.

]JSPLs plant in Angul Odisha JSPL’s plant in Angul, Odisha, has a rated capacity of 2.5 MTPA. It is a part of the 6 MTPA facility that houses the world’s first coal gasification plant to produce sponge iron (DRI).

TDB: Now and then, there have been changes in policies for auction of mines in India. How easy or difficult is it to adhere to the ever-changing norms to get hold of mineral reserves?

RU: We entered into the mines and minerals sector because we need raw material for our steel and power businesses. There have been changes in the process of acquisition of mines, and the government has brought in a new Mines and Minerals (Development and Regulation) Act (MMRDA), under which they are offering long-term leases for existing and new mines. They have also set up the District Mineral Fund, with a view to develop infrastructure in the mineral reserve areas. I think the new MMRDA policy is a step in the right direction, but the only concern I have in this policy is that they have kept the royalty rates very high. The royalty rates in the mining sector in India today stand at 15-20%, which are the highest in the world, and the second highest royalty levied is in Brazil, where miners pay a royalty of 4.5%! The high royalty makes us very uncompetitive. So we have been requesting the state and Central governments to review the royalty levied on miners. Now more transparency is coming into the mines and mineral sector and auctions. I just hope that these policies will be part of a stable policy regime and will not be tampered in future. Because when we know what the government wants, we can act accordingly. Our point is that even if the government changes, there should not be a reversal on these policies.

TDB: What policy changes in investment and taxation would you like to see for the manufacturing sector?

RU: Manufacturing in India can be made more competitive by making sure that the government of India under its ‘Make in India’ initiative introduces policies where the sector is enabled to be more competitive. For this to happen, the tax regime should be stabilised, dumping of goods in India should be curbed, availability of raw material must be ensured, and requirements of various sectors should be analysed and addressed. Some of the basic things that need to be addressed are costs of raw materials and logistics, power rates for manufacturing units, and a simplified tax regime like GST. Multiple taxation – which has a cascading effect while at the same time lacking in uniformity across the country – should be brought to an end. There should be a continuity in policies. Long-awaited labour reforms should be brought in as soon as possible so that the Indian manufacturing sector can operate with the same flexibility as our competitors internationally.