Prolonged weak domestic demand and falling prices have forced the Sajjan Jindal-led alloy major JSW Steel to revise its production and sales guidance by nearly 3 per cent.
The company has also slashed its Capex plans for the year by almost 30 per cent to Rs 11,000 crore due to the prevailing market conditions, its joint managing director and group CFO Seshagiri Rao told reporters.
"On a global perspective, excluding China, steel production across the world is either negative or flat. Only China has increased its production by 9 per cent, which resulted in an increase in consumption of raw material, thus leading to a rise in iron ore and coking coal prices," he said.
Rao also noted that steel prices in China, on the other hand, fell 25 per cent, while in the US, it plunged almost 35 per cent.
"There've been divergent trends in the global market which has impacted steel demand. Back home, demand grew just 3 per cent during the quarter with demand for flat steel used in sectors like machinery, engineering, capital goods and auto declining significantly. Demand for long products, however, improved, but it did not help prices to improve," Rao added.
He noted that due to the existing market scenario, the company, which had set a target of 16.95 mt crude steel production and 16 mt of saleable steel for the fiscal, has reduced the guidance by three per cent.
"Crude steel production and saleable steel volume for the first half stood at 47 per cent and 46 per cent, respectively of the full-year guidance. Even though we expect a pick up in the second half to 5 per cent, volume loss in the first half is unlikely to be recouped in the second half.
Therefore, we expect to achieve 97 per cent of production and saleable steel guidance," Rao added. He further said they have also recalibrated capital expenditure plan for the fiscal in light of the prevailing market conditions.
"We have identified certain projects and have decided to defer our spends to the extent of Rs 4,700 crore to the next fiscal. As a result, our CAPEX for the fiscal will now be Rs 11,000 crore as against our earlier proposed Rs 15,708 crore," Rao said, adding they have already spent Rs 4,955 crore of this in the first half.
About inventory level at its factories, he said, "given the current market scenario, we are trying to increase our exports. During the quarter, our exports accounted for nearly 31 per cent. We will continue to look at exports to Asia, West Asia, Europe and South America. We hope to maintain it at 20-25 per cent levels."
Rao also hoped that the second half of the fiscal is likely to be better as compared to the first mainly on the back of likely demand from increased government spends both at the Central and state levels on construction and awarding of solar projects, among others.
"We feel domestic prices have already bottomed out. With the government spends increasing, we believe there will be an uptick in steel demand. Moreover, we are also expecting an improvement in consumer sentiment in Diwali, which may result in an increase in demand for steel," he added.