JSW Steel to achieve supply normalcy by June; demand revival to take much longer
by Nevin JohnJSW Steel did not increase the inventory during the lockdown. It had capacity utilisation of 38 per cent in April and it increased to 85 per cent in May
At a time when manufacturing companies face multiple challenges due to coronavirus lockdown, Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel, says the company will be able to address supply side issues--- including sourcing of raw materials, getting employees and contract workers to work --- by June. However, the company will have to live with the troubles in the market as demand is not expected to revive anytime soon. Rao says that the steelmaker will not increase the inventory considering the present situation.
"We will reach complete normalcy by June end at the supply front. The demand side is not in our hands and we have to see how to sell. We don't want to increase the inventory," he told BusinessToday.In.
JSW Steel did not increase the inventory during the lockdown. It had capacity utilisation of 38 per cent in April and it increased to 85 per cent in May. It reported a 85.98 per cent year-on-year drop in standalone net profit at Rs 242 crore for the March quarter, compared with Rs 1,727 crore in the same quarter last year. The gross revenue for the quarter fell to Rs 15,020 crore from Rs 19,418 crore in the year-ago quarter.
Rao said, "We found out the gaps where we will be able to sell steel. We started analysing worldwide about the steel producing and importing countries. Steel exporting countries Japan, Korea, Russia and China are deeply impacted by Covid. The steel importing countries, either our neighbours like Nepal, Bhutan, Bengladesh, Sri Lanka and Myanmar or Vietnam, Indonesia, Philippines, Malaysia, Singapore or the countries in Middle East like UAE, Bahrain, Kuwait and Oman, have a shortage of steel. We realised that there is a scope of selling 2-3 million tonnes in these countries. So we started contacting the buyers there for the orders. We started taking export orders from April," he said. The fall in crude price has helped in reducing the shipping costs of the exports.
The domestic demand in April has fallen by 90 per cent. So JSW has exported steel to overseas markets besides catering to the 10 per cent domestic demand. In May, the demand increased to 25-30 per cent from 10 per cent. The improvement is largely because of the government induced expenditure projects like Metro stations, transmission lines, solar energy and pipelines. There is also steel demand coming up from drums and barrels and packaging segments. Industrial construction and retail sides have also seen some tractions.
Rao said that the situation will not improve dramatically because of the three problems--- liquidity, labour and logistics. "There is no credit flow from the banks to the industry. Getting workers is the second issue as the migrant workers went back to their hometowns. Logistics will be the third issue because of the shortage of trained manpower," he said. If the steelmaker was able to reach the customer in 3-4 days during normal times, it has now increased to 15-20 days because of manpower shortage . He expects the normalcy to come back by September-October.
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