MIP and steel rally to ease pressure from China imports- Mr RK Goyal Kalyani Steel
In an interview with CNBC-TV18, Mr RK Goyal, MD, Kalyani Steel, discussed the sharp rise in steel prices and the impact it would have on the local industry.
Below is the verbatim transcript of RK Goyal’s interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Ekta: The minimum import price (MIP) has helped plus there is a recovery that we have seen in steel prices in China over the past one month. Can you just give us the sense in terms of what the on ground situation is when it comes to off-take of steel currently in the domestic market?
A: After the MIP in February, the production for domestic large integrated steel manufacturers has gone up. They could definitely increase the prices and I understand all around there is an improvement in profitability. While all the mid-size plants manufacturing, engineering steels etc, where there is no impact of MIP, they have started suffering much more. Because the input prices have gone up and they could not do anything on the selling price and their margins are further squeezed. Now as far as China is concerned, recently there is an increase in prices of all metals, as far as steel is concerned including steel raw materials. Therefore the impact of MIP has gone down because now as such the prices have gone up and imports from China may reduce basically because the prices in China are much higher than MIP.
Anuj: Can you quantify because Nigel tells me that coke prices have gone up than 50 percent in past three months. If you could confirm if that is the right number and what would that mean for your margins going forward?
A: As far as the coke prices are concerned, they have reached a low of around USD 115 CIF India, it has gone up to almost USD 190 CIF India and this all has happened in last one month. Coupled with that, many of the people who had booked the coke and they are not performing the contracts, so this will lead to further scarcity, further non-availability of metal because the metal which was to be shipped is not coming. As far as the prices in China are concerned, it has gone down to around USD 280 per metric tonne which is now hovering around USD 480 or so.
Ekta: Going forward, I am not talking about quarter four numbers, you declared 22 percent margins in quarter three what would be may be a sustainable run rate for you in FY17?
A: We have to watch very closely the volatility in the market. Like currently the coke prices have gone up, iron ore prices have gone up this metals will be getting sometime in June and all so then it will definitely have an impact on our margins if we are not able to pass on this increased cost of raw materials to our customers.
Anuj: If you could give us some numbers because as Ekta said you had 22 percent margin and with the kind of price increase that we have seen in raw material what kind of hit do you think you are going to take?
A: The cost push is close to Rs 3,000-4,000 per metric tonne. Now it is yet to be seen to what extent we are able to pass it on to our customers so then only we will know, yes whether there is a hit on our margins or we are still able to manage.
Ekta: Coming back to the steel off take that we are seeing in the domestic market can you just quantify to us in terms of volumes as well as price what has been the change or the hike that we will see in steel in the domestic market pre MIP and post MIP accommodating higher prices in China also?
A: Pre MIP and post MIP as far as the prices of TMT or HR coils are concerned I think there is an increase in price to the extent of anything between Rs 6,000-7,000 per metric tonne. As far as engineering in steels are concerned products which we produce customers have started asking for price reduction. Now after the increase in cost of all the major inputs they are not asking for that reduction but we have not received any hike on our products.
Anuj: One more question on the price hike that NMDC recently took. If you could you tell us the difference between the domestic prices and international prices right now?
A: As far as the NMDC prices are concerned last two months they have increased price by Rs 400 to 500 per metric tonne. When you add up all the taxes, royalty and all the landed cost for us has gone up by almost Rs 1,000 per tonne of steel. As far as the international prices are concerned I don’t think it is workable to import iron ore and produce steel from there as international prices have also harden anything between USD 10-18.
Ekta: What about liquidation of inventory?
A: As far as inventory levels are concerned it has gone up in last few months but we are not in a hurry to liquidate the inventory and to sell at a loss. I believe with an increase in price of all the raw materials prices should strengthen further.
Anuj: Would it be fair to say that we can expect another price hike from NMDC since we just discussed the difference between the domestic and international prices?
A: Technically they should not increase because that is the advantage you have producing steel in India. However, they may increase anytime, they are yet to announce what their price increase or decrease for the month of May.
Source : CNBC-TV18