JSW Steel expects steel price recovery and lower coking coal costs in the second half of FY25

JSW Steel expects an improvement in steel prices in the second half of FY25, besides a reduction in coking coal costs by $20-25 per tonne in the third quarter, Joint MD & CEO, Jayant Acharya, said.

JSW Steel, a core entity of the JSW Group, reported a significant 85% year-on-year decline in net profit to ₹404 crore for the September quarter, compared to ₹2,773 crore in the same period last year, Acharya said in an interview with CNBC TV18.

With a market capitalization of around ₹2,34,751.35 crore, JSW Steel shares are up almost 31% in the past year.

Below is the verbatim transcript of the interview.

Q: Since the second half is expected to be much better than what we saw in the first half, can you update us on the price increases in October 2024?

A: The last quarter was a challenging quarter in terms of the overall economic scenario globally and the challenges faced by high exports from China. So we had an influx of inflows into India because India is probably one of the few countries that is growing at a fast pace and that resulted in a drop in sentiment and a drop in prices in India.

However, sentiments have improved after the announcement of the Chinese stimulus package. We have seen some international price increases in China, which has now partly translated into India as well. So in October we were able to increase the prices of large steel and long steel in between ₹With a volume of 1,000 to 2,000 per tonne, which we feel in a seasonally strong quarter ahead, in the third and fourth quarters, demand tends to be stronger, so we think this is something that will sustain.

Q: Sounds optimistic about prices, but what about the benefits of coking coal in the last quarter? What were the savings available and what are you targeting in terms of coking coal costs for the second half of this financial year?

A: Although the steel price fell last quarter, we were able to offset that by reducing costs. One of the factors that made this possible was cooking coal, and cooking coal prices have fallen more or less $27 per tonne in the last quarter, as we predicted. Also for this quarter, we expect cooking coal prices to fall somewhere between $20 and $25 per ton.

Also read: JSW Steel Q2 results: Profit falls 85% YoY to ₹404 crore due to one-off loss

Q: What about volumes? Any change in your guidance? Exports as a percentage of the mix have also fallen to 7%. Will stay soft?

A: Yes, I think on the capital investment front we are seeing improvements on the ground, and that is why you see product prices have stabilized and declined marginally over the longer term. But let’s not forget that the price increase of long products, or flat products, which happened in October, is at a very low level, which was abandoned in September. Prices have fallen in recent months and are now back to, shall we say, reasonable levels. I would like to reach a reasonable level at this point, but yes, the demand for long products reflects the improvement in capital expenditure.

The second point is that for the international market, the international markets have been weaker. The demand is because the economic backdrop has been weaker and the geopolitical risks are more challenging, so therefore the demand has been weaker. Moreover, due to a local demand problem, China has largely exported. But the good thing is that we have seen Chinese manufacturing moderate over the past two months; this fell to 77-78 million tonnes in August and September, after a peak level of more than 90 million tonnes. Hopefully that will result in lower exports as we enter the winter season. That’s one.

Secondly, we see more and more countries putting up barriers because this affects their institutional profitability. We are in discussions with the Indian government and have taken some steps in some anti-dumping measures against certain products. We are in discussions with the government to at least find a level playing field with regard to the low-priced imports that come in.

On the export side, India’s domestic demand growth, which stood at around 13.5% in the first half of the year (H2), reflects very strong demand. And don’t forget that this is due to the fact that capital expenditure in the first half was a little weaker than expected, or the disruptions were greater, despite the fact that we extended the year, September, by six months with approximately 73 million tons of demand, which is very strong demand. signal. So we could take the opportunity to, let’s say, re-target our products to the domestic market and thereby move to a more domestic market, and that is why we had about 93% of the domestic market and several percent of exports. Also, as mentioned, it was affected by weaker international demand and lower prices in international markets.

Question: Your subsidiaries, both Bhushan Power & Steel Limited (BPSL) and your Coated division, have shown a weak performance in the last quarter. Of course there were also a few one-off copies. Will they improve in the coming quarter?

A: At BPSL there were some one-off events. We had a shutdown in BPSL, which was a factory shutdown. Secondly, when we started the oxygen plant, there were some delays in stabilizing the oxygen plant, so we had to source industrial gases from outside and that resulted in higher costs. So these two had an impact on profitability. With the plant stabilized and capacities fully in place, BPSL will certainly post better numbers as we move into the second half.

In coating, EBITDA per tonne has improved quarter on quarter; In short, volumes were lower in the coated products sector, which was affected by international, for example lower exports. But in the second half of the year, we expect coated product numbers to improve as seasonal demand increases.

Question: What about international activities? Both the US and Europe were quite weak. Should that improve from now on?

A: International operations are once again affected by prices, especially in the US. In the US, profitability was negative, approximately $11 million. The Italian activities were still quite okay, but again had consequences; Although volumes were higher, operationally things were fine, but international prices were lower, bringing profitability to approximately $6.2 million.

Also read: JSW Steel and JFE Steel to jointly acquire 100% stake in Thyssenkrupp Electrical Steel for ₹4,051 crore

In Ohio we also had a maintenance shutdown in September, which also affected volumes and also led to higher losses. Going into the second half, I would say we are cautiously optimistic that Italy will improve. On the US side, we see that prices on the hot-rolled coil side have risen again and that the plates are more or less stable. So we expect some improved numbers with some additional volumes coming in the second half of the first half.

Q: Let’s talk about your balance sheet: Net debt has increased, and also net debt to EBITDA has slightly deteriorated by about 3.5 times. Is this ending in the second half of the year and are there plans to raise some equity?

A: In the second half of the year, volumes will be strong due to strong Indian demand and a strong seasonal second half. Our capabilities have come into play. They will be commissioned this quarter (Q3) and expanded in Q4. Therefore, we expect absolute EBITDA numbers to improve and that will give us additional amounts to think about.

The second point is that some of the working capital was built up because of the new facilities that came in, and also because of lower exports. We expect some inventory dilution and working capital releases. We are also looking at several other options to fundamentally improve our ratios and we are confident that we will see an improvement in our ratios by the end of this financial year (FY25).

Also keep in mind that in the last quarter, when it was a challenging quarter, we also did an acquisition of the Illawarra coking coal mine. We have also invested in capital investments. In the first half we spent approx ₹7,850 crore in capital investment. Working capital also increased and some of the inventories also increased. The release of working capital, higher volumes and therefore higher EBITDA will therefore help us to improve our ratios in the future.

Q: But you didn’t answer if you are looking for some equity?

Answer: Not at this time. At the moment we have no plans to do this, but if the right opportunity arises we will look at different ways of looking at the deleveraging options.

For the entire interview, watch the accompanying video

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