National Steel Policy To Boost Sector’s Growth By 200-250 Basis Points: JSPL’s Ravi Uppal

Ravi Uppal, chief executive officer and managing director of Jindal Steel & Power Ltd. (JSPL) is hoping that the government's new steel policy will provide the much-needed fillip to struggling metal producers, making 2017 a “turnaround” year.

The Union Cabinet passed a policy on Wednesday that gives preference to domestically manufactured steel products in government-sponsored projects. The new steel policy also aims to triple the production capacity over the next 13 years.

Uppal said the single biggest challenge going forward will be the support lenders give to steel companies.

Below is an edited transcript of the interview.

The railways is spending a lot of money and so is the road ministry and then of course private institutions need to be created, a lot of buildings have to come up, all these things happen only when there is positive confidence in the economy. Right now the steel industry is growing in the range of 3.5-4 percent, and I am hoping that as the months go along, it might go up to a level of 5-6 percent.

Indian steel producers are also focusing a lot on exports at the moment. Exports had doubled last year, touching nearly 8.5 million tonnes. So last year we were net exporters of steel from India. Imports had come down to a level of 7.8 million tonnes. The government is very mindful that the demand has to go up and one good thing that happened last year that although the domestic demand grew only 3.5 percent, the actual production went up by as much as 10 percent.

If you look at the primary producers where their demand grew by 14 percent but the smaller units like the small and medium enterprises (SMEs) and others, their production only grew by less than 2 percent. So overall production last year was 10.5 percent higher than the year before. As production is on the rise, capacity utilisation will also improve. Having said that, the Indian steel industry barring a couple of private players have gone through a lot of financial stress.

Price of steel had reduced by 50 percent between 2011 and 2015. This basically had an impact on their margins and profitability. They had to service a lot of debt. As prices have improved, they have recovered quite a bit since then. A lot more can happen. It all depends on the growth of domestic demand and the growth of exports that we do. So, I just hope that, the current financial year will be the year when the steel industry will turnaround and the single biggest challenge is going to be how other support banks lend to steel producers. You know that every billion tonne of steel costs you a billion dollars. It is a gestation period from the time you hit the ground till it's up and running is between 4-5 years.

So the government has to think in terms of subvention to core sector industries like steel, hydro-electric projects, thermal projects, only then will they see more investment coming in to it. Otherwise, the load of interest is quite crippling and they have to extend the term before they give the funding. That has to also happen.

Raw materials are equally important, specially the coking coal which is being imported can be replaced by local domestic coking coal. We have to make sure that we intensify mining in the domestic coal mines. We want many more companies to do mine coking coal, set up washeries and make coal available.

Right now 70 percent of the coking coal is being imported from Australia and South Africa, that can be replaced by local production and can be made competitive. The other challenge will be the cost of logistics and the availability of logistics will play a very major role in the distribution of the steel and the consequent cost to the customers. This will be a good policy for the private producers. They will negotiate based on the volumes offered to them and special discounts will be offered to them, that is also a step in the right direction.

I must compliment the government for being so proactive and doing things with the sense of urgency. This will give support to the steel industry by putting in place the minimum import price (MIP) and anti-dumping to fight this kind of predatory pricing by Chinese and Koreans. Now they are looking at the issue of demand availability of the raw materials.

The only thing missing is to make affordable funding for the industry. Government has now come with hydropower policy in which they are giving more funds to those who are developing hydro-electric projects. The same can be made available to the steel industry as well. Hydro projects like steel industry have a long gestation period, so same can be made available for steel and you will see more investments coming in for steel.