JSW’s steel production to take a hit in first quarter, says Seshagiri Rao

“Next quarter should be fine, this quarter we are making up the shortfalls in the domestic market with increasing exports,” he said.

JSW Steel’s steel production will take a hit in the first quarter of the current financial year due to the impact of the ban on the usage of oxygen for industrial purposes. The steel consumption is also expected to be lower as localised lockdowns in several parts of the country are impacting demand.

However, the company’s management is hopeful that the impact will be limited to one quarter and conditions should improve from the second quarter onwards.

Seshagiri Rao MVS, joint managing director, JSW Steel and group chief financial officer told FE that the company’s capacity utilisation of 96% in the March quarter, has come down to 91% in April.

“With the demand for medical oxygen remaining at the same level, (capacity utilisation) in May could also be on similar lines. So, yes, there will be some impact on steel production, which was 4-5% lower in April and May would be on similar lines,” he said.

The company is currently supplying up to 1,200 tonnes per day of medical oxygen and supplied a total of 20,000 tonnes in April. Late last month, JSW Steel had said that it would lower the steel production and ramp up the supply of liquid oxygen, which saw a sharp demand surge as the second wave of Covid-19 hit India. JSW Steel is supplying liquid oxygen from its three manufacturing facilities in Karnataka, Maharashtra and Tamil Nadu to various states.

There has also been an impact on the steel demand, as localised lockdowns and diversion of oxygen for medical purposes has hit steel-consuming industries like metal fabrication and welding units. “In April, the steel consumption has come down to 6.7 million tonne from 9.1 million tonnes in March, so there is an impact of about 3 million tonnes of steel consumption,” Rao said.

However, with the number of Covid-19 cases is coming down and vaccination being rolled out for the majority of the population, Rao said he was hopeful of things getting normalised. “Next quarter should be fine, this quarter we are making up the shortfalls in the domestic market with increasing exports,” he said.

Rao pointed out that despite the short-term hiccups, the year 2021 will remain strong for steel consumption. World Steel Association (WSA) this year has estimated 102 million tonnes of incremental demand, which is 5.6% higher. Of this, 32 million tonnes will be contributed by China with a growth of 3%, and, the balance 70 million tonnes are coming from the rest of the world, where growth is close to 9%.

“WSA estimates that large infrastructure investment thrust by various governments in different countries, which is commodity and steel-intensive, will lead to good demand for steel. In India, WSA has said the steel demand will be 106 million tonnes from the current level of 94 million tonnes, so there will be 12 million tonnes of incremental demand in India in 2021,” he said.

As for the steel prices, which have seen a sharp run, Rao said that while the short-term volatility was created by speculative forces and would see some corrections, it was unlikely to be sharp. “Fundamentally the demand is very strong either globally or in India, despite some impact of the second Covid wave,” Rao said. The prices of the hot-rolled coil have been rising since August 2020. Since then, the metal has risen by 238% to $1515 per tonne, according to Bloomberg data.

JSW Steel reported a sharp jump in the consolidated net profit of nearly 22 times on a year-on-year basis to Rs 4,191 crore for the quarter ended March 31, 2021, clocking its highest quarterly profit ever. The multi-fold jump comes on the back of an increase in steel demand, a sharp increase in steel prices globally and a lower base of last year, which was impacted by the disruptions caused by the Covid-19 pandemic. The steel producer also reported its highest-ever quarterly revenue from operations, which increased 51% y-o-y to Rs 26,934 crore.