Steel demand from auto won’t be same; JSW making structural changes to diversify: Seshagiri Rao

Amongst the various business moves made by JSW Steel in order to navigate through COVID-19 pandemic, one of the prominent steps is to sell steel products to the clients outside the auto industry.

In an interaction with ETCFO, JSW Steel’s Joint Managing Director and Group Chief Financial Officer Seshagiri Rao said selling to non-auto clients is a diversification and de-risking move in some ways as business in this space has come down by 65 percent during the lockdown period.

He further said that despite rebound in segments like passenger vehicles and two-wheelers, steel requirements will take time to reach its pre-COVID levels. JSW is amongst leading steel producers and supplies 10 percent of total steel produced to the auto sector alone. Edited excerpts:

How is your reading of steel demand for the auto sector?

In the normal scenario we were supplying about 2 million tonne to the auto sector from the total 15 million tonne that we produce annually (This would come to about a little over 10 per cent). This would translate to about 2 lakh tonne per month; but during the pandemic lockdown the number had dropped by as much as about 65 per cent.

We are now seeing demand for steel picking up in tractors and two-wheelers; we are also seeing good traction in passenger vehicles from the top two carmakers, Maruti and Hyundai. Demand from both of them improved in July over June. Demand for steel in the commercial vehicles segment, however, remains depressed.

What is the capacity utilisation at your Salem plant, one which is catering mainly to auto players?

Our alloy steel plant at Salem produces about 1 lakh tonne; of this we have 70,000 tonne rolling capacity. There is one bloom mill completely dedicated to the auto sector, and there is a bar mill which can have multiple applications, and finds use in the sectors other than the auto also.

In the lockdown, the bar mill production was not reduced, whereas the bloom mill production came down to 0 in the month of April, which we are now operating at 10,000-15,000 tonne a month; its capacity is 35,000 tonne a month. Therefore, there is a drop of 50 per cent.

Demand for auto is still seen sluggish in the long-term by industry analysts. Are you making any strategic shifts to deal with that scenario? In short, are you looking to diversify and cut your dependence on the auto segment?

Yes, we are making structural changes to compensate for the shortfall in demand for steel from auto.

In the long products side, too, we also have seen a few companies which are buying steel for the alternate use, other than auto. So we are definitely looking at the non-auto component to compensate for the loss of production.

For instance, if we look at the JSW’s Salem unit (mainly catering to the automobile companies), it produces 1 lakh units, of which it used to supply 50-60 per cent of the steel to the auto sector alone. But when we saw the drop what we did was we diversified into non-auto, we supplied blooms and billets to the rails. So, there is a diversification we are trying to do.

Are the changes you are making on the auto side temporary or permanent?

The changes we are making on the auto side are not temporary, they are all structural. Remember the growth in demand for steel from the auto sector is not the same as we have seen in the past. It will never be the same; and therefore the diversification we are doing has a strategic component with itself. The company may not tread the same path even if we happen to see a significant revival in the auto sector.