SAIL has planned a capex of Rs 53,000 crore over next 3-5 years, , CMD , informed CNBC-TV18. SAIL will hike its hot metal capacity to 26 mt, he said. The company’s debt-equity ratio is seen at 1:1 for the planned capex. Roongta said that steel demand is likely to grow 10-12% next year also.
Roongta, believes that steel prices are at healthy levels currently. He was speaking to CNBC-TV18. Roongta said that steel players are seeing price hike of USD 50-70/tonne in January. The demand growth will slow in case of US recession, he feels.
Q: What is your outlook on prices, given the way the raw material prices are spiking up?
A: Steel prices currently are at quite a healthy rate. But there are certain concerns relating to raw material input prices for the steel industry; especially two major inputs – iron ore and coking coal. The long-term price for the year 2008-09 has to be settled across the globe for these two major raw materials. There are expectations that there will be substantial increases in the prices of both these raw materials, which will push the cost up for every steel producer; anywhere ranging from USD 50 to USD 70 per tonne and obviously that may impact steel prices a little bit.
Q: What does this mean for realizations and volume growth going into the first half or the first couple of quarters of the next calendar year?
A: As far as steel demand in India is concerned, it is growing at a very healthy rate of 10%-12% and we expect that demand will continue to grow at that rate. So volume growth in demand will come for year 2008-09 as well. We expect that this trend will be maintained. So we do not expect any problem with regard to marketability of steel.
Q: How much are you provided for in-house with your own iron ore and coking coal facilities? Would this rise in prices translate into a margin improvement for you? Basically, what kind of margins are you expecting in the first half of 2008?
A: We are provided for full captive use of iron ore for our current production. So any change in the iron ore prices may not impact our costs. But regarding coking coal, to a great extent we depend upon imported coking coal – almost 70% of our needs are imported and we get about 25% from Coal India. We have just about 5% in-house coking coal production. So that is going to certainly impact our cost. Added to that, are the increasing costs of shipping. So these two factors will certainly impact our costs as well. Margins will depend upon how steel prices behave in 2008.
Overall demand is growing. But there are certain concerns relating to economic risks; related to subprime issues in US. If that impacts the US economy and global economy in general, then the rate of growth of steel consumption might slowdown in 2008. So the prices may also be determined by the overall demand in supply and producers may not be able to pass on the entire cost increase.
Q: Specifically with regards to your capacity now, your hot metal capacity – you are going to hike it to 26 million tonne; what is the outlay in terms of investments in capital expenditure plan that you can lay out for us over the next 24-36 months?
A: We are hiking our hot metal capacity from 14 million to 26 million tonne over the next three-three and a half years and outlay for this entire capacity expansion is going to be of the order of about 50,000 crore or USD 12 billion. That also includes outlay for our sustenance schemes. If we have to continue with the current capacity, we have to do certain minimum investments and also for technological upgradation like converting our semi-finished steel into finished steel, which does not add to capacity expansion, but improves our product mix.
For example, we are still having about one-third of our production through energy inefficient route, which we are going to convert into 100% continuous cost route. So all these three factors put together our outlay will be roughly about 50,000 crore.
Q: Twelve months from now, what is likely to be your capacity, are you likely to see some expansion already in one year and secondly are you likely to tap any resources from the market or the banks in the next twelve months. If so, what kind of instruments and how much?
A: Next twelve months, we are not adding to any nameplate capacity. But we are certainly working on certain internal efficiencies and from the same capacity through better utilization; we can improve our production and productivity. But we are not adding to the new capacities in the next twelve months.
Q: Lastly for the entire capex that you have pointed out for us, what sort of debt-equity ratio will SAIL maintain over the next three years and what are you currently equipped at on the debt equity ratio?
A: I think we have mentioned it in the past also that for the entire capex plan of SAIL, we have planned for a debt equity ratio of 1:1 and we should be able to generate 50% of our required resources internally and we will go for debt for the balanced 50%.