JSW Steel: We expect good demand and healthy momentum going into FY24: Jayant Acharya, JSW Steel
You just reported your Q4 production numbers and it was a record output this time around. But the question is, how is the demand momentum on the ground looking like at this point of time and will it sustain in FY24 going forward?
Yes, we had a very good production number last quarter. The production went up by 24%. The primary reason for these production movements is the ramp up of our capacity in Dolvi of the phase 2 expansion. The ramp up of our expansions in BPSL and some de-bottlenecking which we were doing earlier at the other brownfield steel plants.
We expect the momentum of the next year to continue because the full operation of Dolvi will be available to us. The BPSL ramp up of expansions will come in place and we also see a stable operation in JISPL and our Ohio operations in US. So, the next year also should be an upside on the production numbers.
What about steel prices, internationally, domestically? Do you think the effect of Chinese demand has played out in a full way, especially for the domestic side?
Yes, so post the Chinese opening up post the COVID restrictions, there is an expectation that the Chinese demand will improve and that has supported steel prices and commodity prices globally. We expect the domestic demand to be quite healthy as we go into the next year primarily on the back of a healthy capex spend by the Government of India and also an increasing trend in the capex spend by the private sector. We see a good demand and a healthy momentum going into FY24.
Even export volumes are expected to perk up, because all those duty constraints, etc, have been removed now, so what about the outlook on the export volumes?
We saw a domestic growth of about 12% in India in the last year. We do expect, as per various estimates, a growth of close to 8% in FY24. As far as export volumes are concerned, post removal of export duty in November 22, we have seen a steady increase of exports from the country and after five months of being a net importer, India has turned a net exporter in the month of March. Quarter 3 to quarter 4, our exports have gone up from 1.3 million to 2.3 million as a country.
Also wanted to get a bit of sense from you on the profitability, because as you pointed out demand momentum is quite decent, steel prices have inched up on one hand and on the other hand coal prices have come down substantially and that forms a major part of your opex costs as well. All of this points to the fact that the profitability for the companies are also expected to be a lot better in FY24. Would you concur?
The coking coal prices, actually if you look at the last 10 years average have been in the range of $165 FOB Australia. If you look at the last year’s average, it is $330, which is double of what it was in the last 10 years. So, coking coal prices continue to remain elevated. In addition to that, if you look at the iron ore prices in the domestic market, because India uses more of domestic iron ore, the prices have also gone up, let us say post-November by almost Rs 1500 per tonne.
So, therefore, there is a pressure on the cost side. Having said that, steel prices have also gone up only post that. It has reflected an increase internationally and the same has been reflected in India. Going forward, I think steel prices will depend a lot on the supply-demand scenario, as well as on the prices of raw material and how the global steel prices move. So, we would see India reflecting a movement of global steel prices going forward.
What about the profitability metrics? Expecting a big improvement, I understand that when you compare it with the 10-year averages, it is still high but at least FY24 versus FY23?
I would say that the levers on next year what we have is a volume growth. I think that will continue to be favourable for JSW Steel in FY24. As far as the EBITDA profitability levers are concerned, it will be difficult for me to comment or give you any specific colour right now, but we will be able to give you some colour after our May results.
Just when we talk about the raw material prices coming down, coking coal, various others, you think it will limit the price hikes going ahead? Is that something which you are looking at or you would look at the net EBITDA per tonne number?
The coking coal prices, as I said, have remained on the higher side and we have seen some softening of the coking coal prices in the last one month. But since they are already far higher than the normal level, we do not expect that to impact steel prices materially. So, I would say steel prices will remain range-bound in the near future.
There are also reports talking about how you have bagged an iron ore mine in Karnataka. You have also been a bidder when it comes to the coal mines as well. Could you talk to us about what kind of scale-up is expected on account of that? How does the supply situation improve and what kind of investments you will be making in these?
Yes, we have been the preferred bidder for three coal mines and two iron ore mines. So, we are expecting our iron ore production to ramp up. In terms of investments, we are still working on the investment plans for all the three mines in the coal sector as well as the two mines in the iron ore sector. However, going forward, we will continue to participate in all the mineral options which come up in the country. Our long-term strategy is to secure the raw material both for coking coal and iron ore and therefore, we would work on that strategy going forward. Currently, we are reaching close to 45% to 50% of iron ore from our own mines being supplied to the steel plants.
