In an interview with ET Now, Ravi Uppal, MD & Group CEO, JSPL, shares his outlook on the Indian commodity companies. Excerpts:
ET Now: How long do you think will this storm continue for commodity players?
Ravi Uppal: How long this storm lasts will depend on which country we are talking about. India has a huge propensity for demand, though it is a different matter that we have not yet grown to our full potential.
In the first six months of this year, demand has grown just about 4%. What is more, the benefit of this 4% also did not go to Indian manufacturers because imports grew nearly 53%. Much of the benefit of this additional demand actually went to those who export to India.
Therefore, it is very important that the Indian industry is given some protection at this point, when crisis-ridden global players like China, Japan and Korea are literally dumping steel in the Indian markets.
Indian commodity companies should be able to grow at a decent rate if the economy grows at about 7%. Provided that infrastructure takes off, our own demand should grow at 7%-8%, which is good enough.
If India grows, the demand for steel will rise at a good enough pace. But the government will have to ensure that our industry is not totally exposed to dumping. That is one key point.
As of now, global demand remains quite tepid. I reckon it will take at least another 2-3 years before demand starts to grow again. Much will depend on what kind of consolidation takes place in China.
China is sitting on a capacity of about 1.2 billion tonnes. They have been producing anywhere between 750 to 800 million tonnes annually in recent years. China's domestic demand is down, and therefore they are seeking to dump their steel outside.
They even set a monthly dumping record last month at 13.5 million tonnes. If this continues, they will then be exporting around 165 million tonnes of steel in a year, which is more than the producing capacity of any other country. It can spell doom for other producers.
India's steel industry deserves to grow. There is no big country in the world which has grown by importing steel — be it US, Japan, Russia, Germany or, for that matter, China. Therefore, our domestic industry must grow.
We have a full mineral base of our own. We should be using it for the growth of our mining and steel industry.
ET Now: Commodities have to be competitive. But our industry is not competitive. Shall we keep suffering till we acquire a global edge?
Ravi Uppal: I don't agree that the Indian steel industry is uncompetitive. We, on the contrary, are actually fierce competitors. Our conversion cost is among the best in the world. Among the world's top 30, there are as many as 8 Indian steel plants.
It is a different matter that we do not have a level playing field in India. We have to deal with many external factors like interest cost, logistics cost and power cost. There are many disadvantages of the Indian steel industry.
Once the requisite inputs flow in, our industry will certainly outperform. As I have already told you, Indian producers' conversion costs are comparable with the best in the world.
ET Now: When according to you can a turnaround happen, and what could possibly trigger that change of fate? Will it be an on-ground pick-up in industry, or will it be a turnaround in the global commodity situation?
Ravi Uppal: There are two things that have to happen simultaneously. First, India’s own demand for steel has to grow. In the first six months of this year, the demand grew only about 4%. It should in fact grow by 8%-10% especially keeping in view that our GDP is growing 7%-7.5%.
We are already seeing some green shoots here and there. There has been some good movement within the railways and road segments. I am inclined to believe that the same thing is going to happen in other sectors as well.
The government needs to give a little more push so that private investment comes in. Till now, the bulk of the investment has come in from the public sector. The private sector has to be motivated to join the effort.
We need to bring down interest rates even further. Our commercial lending rates are still very high. At those rates, not many entrepreneurs feel safe to put money into the economy. We have to create the right kind of investment climate for private entrepreneurs to come forward.
It is a good thing that the public sector is coming forward and spending money to build infrastructure. But that in itself is not sufficient. The private sector also has to join with the government. We could also have PPP assume a greater role so that we could give a frontal push to infra development.
Secondly, given the huge recession and the excess global capacity, India has to ring-fence its industry for a while — for the next one year or two — until such time that things are stabilised. This should be done by way of putting the necessary safeguard duties in place.
We also need to make sure that foreign suppliers do not manoeuvre their way into India by exploiting policy loopholes. I feel we must put the safeguard duty right across the whole value chain. We should also try to introduce minimum floor price levels for any imports coming into India so that no exporter to India can manipulate information and then gain entry into the market.
I am not saying that this kind of protection is required for all times. It is only required at this point, when global conditions are highly unstable and people are resorting to very violent pricing and dumping goods into the Indian market.
ET Now: How deep has been the impact of the commodity crash in the last one year? How much strain on cash flows are you seeing right now? Won't it affect debt servicing?
Ravi Uppal: The price slump in the last 12 months has left no steel company unscathed. Prices have dropped by nearly 30%, and demand has not grown too. A good chunk of whatever demand was left has been taken over by imports.
If we allow this to continue unabated, imports will increase still further. Margin squeeze has been experienced by all the manufacturers. Demand has not been great and therefore, steel units have had to cut down on production. Their growth plans have stalled.
The whole industry has been in a state of limbo. India does not deserve that. We have a huge demand propensity and it will definitely materialise. We just have to make sure that our steel and mining industries get the chance to grow.
Banks and other financiers have to take a more liberal and supportive view of the industry. They are aware that the problem faced by industry is not unit-specific. Those are actually across-the-board kind of issues.
I am sure the steel industry will certainly come out of the present challenges. We have to always keep in mind that our steel industry contributes nearly 2.5% to India's GDP. It directly employs about 750,000 people, besides the many more employed in the mining sector. So, if steel is unable to recover, mining and logistics & transportations sectors will also be adversely impacted.
That is why India can't afford to ignore the steel industry. The government and various other institutions have to be very sensitive to the state of this crucial industry.
ET Now: How long do you think will this storm continue for commodity players?
Ravi Uppal: How long this storm lasts will depend on which country we are talking about. India has a huge propensity for demand, though it is a different matter that we have not yet grown to our full potential.
In the first six months of this year, demand has grown just about 4%. What is more, the benefit of this 4% also did not go to Indian manufacturers because imports grew nearly 53%. Much of the benefit of this additional demand actually went to those who export to India.
Therefore, it is very important that the Indian industry is given some protection at this point, when crisis-ridden global players like China, Japan and Korea are literally dumping steel in the Indian markets.
Indian commodity companies should be able to grow at a decent rate if the economy grows at about 7%. Provided that infrastructure takes off, our own demand should grow at 7%-8%, which is good enough.
If India grows, the demand for steel will rise at a good enough pace. But the government will have to ensure that our industry is not totally exposed to dumping. That is one key point.
As of now, global demand remains quite tepid. I reckon it will take at least another 2-3 years before demand starts to grow again. Much will depend on what kind of consolidation takes place in China.
China is sitting on a capacity of about 1.2 billion tonnes. They have been producing anywhere between 750 to 800 million tonnes annually in recent years. China's domestic demand is down, and therefore they are seeking to dump their steel outside.
They even set a monthly dumping record last month at 13.5 million tonnes. If this continues, they will then be exporting around 165 million tonnes of steel in a year, which is more than the producing capacity of any other country. It can spell doom for other producers.
India's steel industry deserves to grow. There is no big country in the world which has grown by importing steel — be it US, Japan, Russia, Germany or, for that matter, China. Therefore, our domestic industry must grow.
We have a full mineral base of our own. We should be using it for the growth of our mining and steel industry.
ET Now: Commodities have to be competitive. But our industry is not competitive. Shall we keep suffering till we acquire a global edge?
Ravi Uppal: I don't agree that the Indian steel industry is uncompetitive. We, on the contrary, are actually fierce competitors. Our conversion cost is among the best in the world. Among the world's top 30, there are as many as 8 Indian steel plants.
It is a different matter that we do not have a level playing field in India. We have to deal with many external factors like interest cost, logistics cost and power cost. There are many disadvantages of the Indian steel industry.
Once the requisite inputs flow in, our industry will certainly outperform. As I have already told you, Indian producers' conversion costs are comparable with the best in the world.
ET Now: When according to you can a turnaround happen, and what could possibly trigger that change of fate? Will it be an on-ground pick-up in industry, or will it be a turnaround in the global commodity situation?
Ravi Uppal: There are two things that have to happen simultaneously. First, India’s own demand for steel has to grow. In the first six months of this year, the demand grew only about 4%. It should in fact grow by 8%-10% especially keeping in view that our GDP is growing 7%-7.5%.
We are already seeing some green shoots here and there. There has been some good movement within the railways and road segments. I am inclined to believe that the same thing is going to happen in other sectors as well.
The government needs to give a little more push so that private investment comes in. Till now, the bulk of the investment has come in from the public sector. The private sector has to be motivated to join the effort.
We need to bring down interest rates even further. Our commercial lending rates are still very high. At those rates, not many entrepreneurs feel safe to put money into the economy. We have to create the right kind of investment climate for private entrepreneurs to come forward.
It is a good thing that the public sector is coming forward and spending money to build infrastructure. But that in itself is not sufficient. The private sector also has to join with the government. We could also have PPP assume a greater role so that we could give a frontal push to infra development.
Secondly, given the huge recession and the excess global capacity, India has to ring-fence its industry for a while — for the next one year or two — until such time that things are stabilised. This should be done by way of putting the necessary safeguard duties in place.
We also need to make sure that foreign suppliers do not manoeuvre their way into India by exploiting policy loopholes. I feel we must put the safeguard duty right across the whole value chain. We should also try to introduce minimum floor price levels for any imports coming into India so that no exporter to India can manipulate information and then gain entry into the market.
I am not saying that this kind of protection is required for all times. It is only required at this point, when global conditions are highly unstable and people are resorting to very violent pricing and dumping goods into the Indian market.
ET Now: How deep has been the impact of the commodity crash in the last one year? How much strain on cash flows are you seeing right now? Won't it affect debt servicing?
Ravi Uppal: The price slump in the last 12 months has left no steel company unscathed. Prices have dropped by nearly 30%, and demand has not grown too. A good chunk of whatever demand was left has been taken over by imports.
If we allow this to continue unabated, imports will increase still further. Margin squeeze has been experienced by all the manufacturers. Demand has not been great and therefore, steel units have had to cut down on production. Their growth plans have stalled.
The whole industry has been in a state of limbo. India does not deserve that. We have a huge demand propensity and it will definitely materialise. We just have to make sure that our steel and mining industries get the chance to grow.
Banks and other financiers have to take a more liberal and supportive view of the industry. They are aware that the problem faced by industry is not unit-specific. Those are actually across-the-board kind of issues.
I am sure the steel industry will certainly come out of the present challenges. We have to always keep in mind that our steel industry contributes nearly 2.5% to India's GDP. It directly employs about 750,000 people, besides the many more employed in the mining sector. So, if steel is unable to recover, mining and logistics & transportations sectors will also be adversely impacted.
That is why India can't afford to ignore the steel industry. The government and various other institutions have to be very sensitive to the state of this crucial industry.
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