Government capex returns to aid steel demand: JSW Steel’s Acharya

JSW Steel expects steel demand to rise as spending in New Delhi normalized in the last fiscal quarter, after slowing in India due to elections and the formation of a new government.

JSW Steel joint managing director Jayant Acharya said steel demand has shown good growth in the first nine months of the current fiscal despite lower capital expenditure, adding that this has laid the foundation for “good” growth in the mid-term.

“Although capex was lower in April-November, we saw very strong domestic (steel demand) growth. With the election behind us and with weather disruptions, capex will improve this financial year, so Q4 should will be strong again,” he told Mint in a post-earnings interview.

JSW Steel, India’s largest steelmaker by capacity, reported a 1% year-on-year decline in consolidated revenue to $41,378 crore in the October-December quarter. Comprehensive profit fell by more than two-thirds year-on-year $719 Crores. Ebitda fell 22% $5,579 Crores.

Capital expenditure impact

Between April and November 2024, government capital expenditure will be $5.13 trillion, slightly less than half of the budget allocation $11.11 trillion in fiscal year 2024-25.

“We expect the government to drive growth and capex, which is positive for India as a whole. Despite any deviations from trade measures and the mining sector, we remain positive on India in the medium to long term.”

Acharya was unusually referring to the surge in India’s steel imports over the past year. Data from market intelligence company BigMint shows that India’s imported steel shipments will increase by 22% in 2024, reaching 9.2 million tons, driven by a surge in imports from China and Japan.

While imports represent only a fraction of India’s annual steel consumption of about 150 million tonnes, cheap imports are disrupting prices at domestic steel mills, which claim current price levels cannot sustain continued investment in capacity expansion. Large domestic steel producers have unanimously asked New Delhi to limit the growth of steel imports.

Another anomaly mentioned by Acharya is the recent Supreme Court ruling that states have legislative powers to tax the mining industry in addition to royalties levied by the Centre. The ruling puts the metals and mining industry in a bind as the retrospective application of the judgment leaves mining companies with huge liabilities, which is expected to impose additional costs on the industry as a whole.

In fact, a key demand from steelmakers to the government in the upcoming budget is “clarity on mining regulations and challenges that remain in the sector,” Acharya said.

Talking about the steel industry’s expectations for the upcoming Union Budget, Acharya said steelmakers seek to continue “focusing on government capital expenditure which has huge economic multipliers”.

“The second is to stimulate consumption so that private capital spending returns in a better way,” he said.

Driven by capacity expansion, JSW Steel expects its production capacity to reach 34.2 million tons by the end of this year. This will bring its global manufacturing capacity to 35.7 million tons per year, including plants in the United States and Italy.

By September 2027, the company expects India’s annual steelmaking capacity to reach 42 million tons. It aims to exceed 50 million tonnes per year by the turn of the century.

The Indian government aims to increase domestic steel production capacity to 300 million tons per year by 2030-31 from 180 million tons at the end of fiscal 2024.