India: JSPL optimistic of achieving production guidance in FY'22

JSPL, one of the major steel producers in India, is gradually moving towards achieving its production guidance of 8.25 mn t in FY'22. Despite adverse market conditions due to the second wave of Covid-19 and ensuing lockdowns, JSPL has been able to post a resilient set of numbers in Q1FY'22.

Highlights of Q1FY'22

1. Export sales at 34% of total sales: Demand in the overseas market was robust with Indian mills focusing on countries in the Middle East, Gulf, and European Union which has led to exports at 34% of total sales in Q1. It is to be noted that total sales volumes were at 1.61 mn t in Q1FY'22. During the quarter, long steel prices were relatively subdued compared to flat steel prices, which were also boosted by a buoyant exports market.

2. Net sales realisation up: Last year, due to Covid cases and lockdowns in India, the company exported around 70-80% of its production. Thus, last year the net sales realisation was around INR 42,000/t. However, the same increased by INR 63,000/t in Q1FY21 across all products.

3. Pellet production and sales increase q-o-q: The company's pellet production witnessed a 6% quarterly growth to 2.16 mn t in Q1FY'22. Along with this, external sales of pellets surged by 39% q-o-q to 0.40 mn t which is noteworthy because production volumes remained stable on a quarterly basis.

4. Exhausted iron ore inventory at Sarda mines: The company has exhausted the inventory of iron ore from its Sarda mines in April. However, due to the favourable policy of the Odisha government, the company is buying iron ore from OMC and other merchant miners in Odisha. Thus, the company is hopeful that there will be no shortage of iron ore in the upcoming quarters.

5. Raw material prices: Coking coal prices increased sharply to $220-230/t FoB Australia which was around $90-100/t FoB Australia last quarter. Meanwhile, global iron ore prices have reported a sharp decline of around $60/t which in turn led to a fall in domestic iron ore prices.

6. Expansion plans: JSPL, in its recent investors call, shared that it is planning to set up a new hot strip mill in its Angul plant to convert semi-finished to finished steel products. The company wants to diversify its product portfolio from the present hot-rolled coils and plates to slowly expand the downstream line for CRCs and galvanised products by FY24. The company is also planning to add galvalume, pipes, and electrical steel products.

7. New pellet plant at Angul: JSPL is planning to set up a 6 mn t pellet plant at Angul to make use of lower-grade iron ore fines. Thus, the company is hopeful that there will be no shortage of pellets in the future

8. Prices may remain range-bound: Company officials said rebar prices may see a slight correction in the upcoming quarter provided the prices of iron ore come down in the near term.

9. Limited availability of vessels due to port congestion: Delayed export vessels for HRCs, plates, structural steel, wire rods, and rebar are at ports and are yet to be shipped. The vessels were delayed due to a cyclone in the Bay of Bengal. Another reason was that Chinese, Hong Kong, and Singapore governments had declared that vessels coming from Indian port should be quarantined for 14 days to reduce the rise of Covid. Thus the shortage of vessels led to delayed shipments from India.

Outlook

The company said, with Covid cases coming down, it will offer relief to the industry and end-users. "The effective vaccination campaign will encourage workers to return to construction sites and help speed up manufacturing, which will likely boost domestic demand," said V.R. Sharma, Managing Director, JSPL.