JSW's Seshagiri Rao explains why the steel industry is hurting

Steel companies are facing multiple headwinds in the form of higher raw material prices, export duties and falling demand because of a possible recession in developed markets. In an interview with CNBC-TV18, Seshagiri Rao, Joint MD and Group CFO of JSW Steel explained what the sector is battling and where he thinks is the way forward.

The sector has been hit by a 15 percent export duty on finished steel which was imposed by the government to protect the domestic need due to geopolitical uncertainties. Rao said that this imposition of export duty has hurt the steel industry and in turn will hurt the economy.

“Exports, in the last year were 18.5 million tonne whereas in this year they have already fallen, on a proportionate basis for 4 months, more than 50 percent. So, that also is impacting the overall production in India,” he said.

Global steel demand is falling because of economic conditions and financial tightness in the international market. Therefore, global demand for steel is weaker than anticipated in the current year.

However, Rao does not expect steel prices to fall further from hereon.

“Coking coal which came down to USD 170 per tonne, again we are seeing an uptick in the coking coal prices globally. Iron ore prices are not falling below 100 percent; as and when it comes to the level again it is going up. Therefore, if the raw material price cost push remains at the current levels then I do not expect steel prices to fall further,” said Rao.

An ICRA report estimates that domestic demand will grow 7-8 percent in the coming quarters as prices stabilise. It further states that steel exports are expected to fall by 25 percent in this fiscal.

"There has been inventory build-up in domestic steel market... Steel demand has weakened on a sequential basis." said Rao.