JSW Steel ramps up capacity utilization to 85 percent in May

May 26,2020

After restarting operations around a month ago, JSW Steel raised its capacity utilization to 85 percent in May, underlining the significance of government orders to support India Inc get back to business.

Seshagiri Rao, joint managing director of JSW Steel, said, "We gradually improved our capacity utilization to 85 percent in May from a level of 38 percent in April. We are seeing some traction but it is not from capital goods or auto sector, but from government-induced expenditure in transmission, distribution, solar, metros, and pipelines." After hitting a historic low in April, domestic steel demand is only expected to climb back to 25-30 percent of normal levels this month.

While demand has declined across the country after the first three phases of the lockdown, the industry is projected to recover in the latter half of the financial year. Liquidity, labor, and logistics, or 3Ls, have emerged as core challenges as the economy seeks to pull out of the lockdown, Rao said. Access to liquidity is very difficult around the market, whereas relocation is a question of contract labor on the shop floor.

"Our suggestion is that whoever is willing to travel back, the government must provide them with the means to do so," he added. Logistics issues include the non-availability of drivers either for railways or road transport.

Separately, Indian steel giants, including JSW Steel, are progressively looking at exports as an incentive to further counter the loss of demand at home.

The steel exporting countries, such as Russia, Japan, and South Korea, were unwilling to produce and export due to the pandemic. In March-April, Russia and Japan experienced a decrease in demand of 24 percent and 23 percent.

"This has given an opportunity for India to explore markets where steel can be consumed, which is not a permanent incentive and will stay in force for another six months. Major export markets include Nepal, Sri Lanka, Bhutan, Bangladesh, and Myanmar, accompanied by the Philippines, Taiwan, Malaysia and Vietnam, the United Arab Emirates, Saudi Arabia, Bahrain, and Kuwait. The 9 percent rupee depreciation last year and another 6 percent depreciation in the quarter have also boosted exports," Rao said.

Data from the April Joint Plant Committee revealed that domestic steel supply decreased by 69 percent and demand decreased by 91 percent. Only the top six players — Tata Steel, JSW Steel, SAIL, JSPL, ArcelorMittal Nippon Steel, and RINL — produced steel.

"That means secondary players that comprise 40 percent of output were not able to produce. So it is important that MSME lending of Rs 3 lakh crore should happen quickly to help revive the secondary steel sector," he said.

JSW Steel has major Capex plans to increase its capability by 35 percent. There were 15,000 employees at the Dolvi plant earlier, but just 30 percent or 3,000 of them could be retained.

"We hope to bring them back and complete 6-7 months of pending work. That is why we pushed back our Capex plans to next year," Rao said.

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