Why is steel demand up? JSW insider explains

MUMBAI: Faster-than-expected recovery in the automobile segment helped JSW Steel’s sales to the sector rise almost four times sequentially in the quarter ended September and return to healthy profits, a top official said.“Reason for a good domestic demand is the auto sector,” Seshagiri Rao, joint managing director at JSW Steel, told ET in an interaction. “While everyone was expecting it to take more time for recovery in the auto industry, the segment reported a 7% growth and our sales towards the auto sector went up by 392% on a QoQ basis.” The company reported net profit of Rs 1,595 crore in the September quarter against a loss of Rs 582 crore in April-June period. It had reported net profit of Rs 2,536 crore in the quarter ended September 2019.In addition to the automobile sector, JSW Steel was also able to tap the electrical appliances segment market in the second quarter, Rao said. “Appliances sector has done well for us, and so has the solar and the coated products segment,” he said. “Value-added steel demand went up by 29%. The recovery in these segments made us improve our sales numbers.” The company’s capacity utilisation levels have reached around 86% which is in line with the pre-Covid levels of around 85%. “Domestic consumption during Q1 was down 50%, whereas it is just 10% this quarter,” Rao said.Several steel companies, including JSW Steel banked on exports to recover the domestic demand washout during the peak pandemic time of April-June. However, with increase in domestic demand, JSW Steel has moderated its exports from 57% in the first quarter to 28% in Q2.“Out of 4.4 million tonnes sold, we were able to sell about 3 mt in the domestic market, as against just 1.21 mt in the domestic market in Q1,” Rao said.The company was able to bring down its inventory levels in Q2 to 768,000 tonnes from about 1.23 million tonnes in Q1.Amid better demand and high raw material cost, steel companies had hiked prices since July to about Rs 7,000-7,500 per tonne. Rao said Indian prices are still at a discount to international prices, indicating that there could be further hikes in the coming months. “If you compare the increase in April-September, international prices have gone up by 27%, Indian steel prices have not gone up that much,” he said. “In November we will watch how steel prices go and based on that we will take a call.” On the outlook for FY21, Rao said the auto revival might not necessarily be as good as this quarter, but two-wheelers and passenger vehicle segments are expected to do extremely well along with agri equipment and tractors.Rao said there is good traction in capital expenditure by public sector companies. “Coal India has said that it will spend around Rs 50,000 crore of capex,” he said.
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