Mr CS Verma says Steel Authority of India Ltd has drawn up ambitious plans to invest over INR 70,000 crore to increase its production capacity by two thirds to 24 million tonnes in three years. But Mr CS Verma CMD of SAIL told Sudheer Pal Singh and Jyoti Mukul the Maharatna enterprise was now faced with the task of wading through the turmoil in the global and domestic markets and a fast changing mining regime.
QUESTION - What would be the impact of the ongoing crisis in Western economies on steel demand?
ANS - A dip is being seen in only those markets which are saturated. Global capacity utilisation of steel plants is around 80%, whereas Indian plants are running at 100%. There is not going to be any impact on steel prices or demand in India. The World Steel Association has projected 13% growth in the Indian steel demand in this calendar year and 14% in 2012, compared to a 5% rise elsewhere. India is the hub of industrial activity. Its infrastructure spending in the current Plan period is around USD 514 billion, which is going to grow up to USD 1 trillion in the twelfth Plan. All the parameters of the economy are robust and positive. A marginal dip in the gross domestic product growth does not make much difference.
QUESTION - What kind of impact will the US debt package have on commodity prices?
ANS - We do not anticipate any upward revision in iron ore prices. For producing a tonne of steel, we require a tonne of coking coal and 1.6 tonnes of iron ore. Iron ore prices are already stabilised. Coking coal prices, hovering around USD 300 a tonne, will return to the normal levels in due course. These prices had gone up due to floods in Australia. So, coking coal prices have to come down by at least USD 40 to USD 50 a tonne. Therefore, the cost of production for steel will also come down. We were expecting this to happen this quarter, but this should happen before December end. SAIL imports 75% of its coking coal requirement. If there is a drop in coking coal prices, we will also have saving in the cost of production to that extent.
QUESTION - Since your follow-on issue has been delayed and you may require more debt, how do you think the prevailing high interest rates will affect you?
ANS - We will be raising debt only for temporary requirements. High interest rates will not impact us since we also earn interest on deposits, which stood at around INR 17,300 crore as on March 31. A lot of our borrowings are through external commercial borrowings, which we use for making payments for coal imports. So, we do not get impacted by the increase in domestic interest rates.
QUESTION - After the Supreme Court banned mining in Bellary, the steel and mining sector is passing through a tough time. How do you look at the current scenario?
ANS - SAIL is not impacted, as we have our captive mines. Also, we have no mines operating in that area. We are able to meet our requirement of iron ore entirely from our own mines. It will only have a temporary effect on companies operating steel plants in that region. For them, bringing iron ore from other states will include issues of logistics constraints. A solution to the problem will have to come soon. Environmental issues can be tackled with specific schemes, but nobody supports illegal mining.
QUESTION - How would the Bellary development affect iron ore rates?
ANS - These rates have been hovering around USD 175 a tonne. I have not seen very large up and down movement in these prices in the recent past. The development in Bellary will not affect global or domestic iron ore prices. India produces 225 million tonne of iron ore and exports around 100 million tonne. Karnataka produces 22% of the domestic production at 42 million tonne. So, owing to the demand and supply dynamics, India’s exports will come down. Even if we assume nil production from Karnataka, we will still have surplus.
QUESTION - The mining Bill proposes to do away with the reservation available to public sector undertakings in allocation of captive mines. The argument is it is inconsistent with the idea of competitive bidding. How would the decision affect you?
ANS - I would not like to comment, as it’s only a recommendation and there are many other issues involved. It will take many months before the Bill takes a final shape. The final shape of the bill will depend on the government’s outlook. PSUs are subjected to a lot of obligations. SAIL is running 175 schools and 27 hospitals. There has to be parity and a level-playing field. PSUs do deserve better treatment.
QUESTION - The mining GoM has decided to make it mandatory for companies like SAIL to share 100% royalty with locals. How would this impact you? Won’t the benefit sharing proposal lead to accounting problems?
ANS - We are already paying enhanced royalty. Royalty rates have already been more than doubled, compared to April 2010. SAIL has four-five billion tonnes of iron ore reserves. Today, we are paying around INR 400 crore royalty. As for coal, we are mining very small quantities. Also, all our coal mines are captive, and it is not clear whether the benefit sharing proposal would cover captive mines also. Accounting issues will definitely be there, but it is not a big problem. Separate units can be identified for preparation of accounts. These can be made separate profit centres. These issues can be surmounted.
Source – STEEL GURU
