The company's current annual coking coal requirement stands at 7-8 million tonnes. Rao feels sourcing coking coal locally will reduce operational cost.
He however, feels that the state of iron ore production is worrisome. "There is hope that more production will come into operation, but nothing has been happening on the ground.
This is leading to an increase in imports. This year around 10-15 million tonnes of iron ore has been imported, which is a matter of concern," he said.
With domestic steel industry not getting adequate iron ore to produce, he expects total iron ore production for FY15 to be sub-105 million tonnes against against 135 million tonne last year.
Below is the transcript of Seshagiri Rao's interview with Latha Venkatesh & Reema Tendulkar on CNBC-TV18.
Latha: A word on what Russian fall mean for global steel prices. Some of the Commonwealth of Independent States (CIS) countries companies also sell steel, we understand there is a goodish bit of undercutting now with China which also in a mood to undercut it domestic steel consumption is falling. What is the global steel price, are your landed prices becoming a bit of a competition?
A: Yes, that is true because the currency devaluation which has happened for the last few months either ruble or Japanese yen, Korean won, it has an impact on the international prices adding to that Chinese slowdown. Therefore, the countries which are export dependent, those countries are producing more steel and looking for markets – that is also supported by the devaluation of those currencies and that is why in this quarter we have seen the prices dropping internationally but now we are seeing little stability in the prices because scrap prices started looking up which has gone down below USD 300 and now we are seeing USD 320 per tonne, so scrap prices started looking up and also the raw material price fall which was there, iron ore around USD 70 and coking coal at USD 110, they are all indications that the stability is there in the prices internationally, so correction already happened in the last two-two-and-a-half months.
Reema: A word on the approach paper on the coal auctions which was laid out yesterday. There is a provision that the total extractable reserve price cannot exceed 150 percent of the coal requirement for the company for 30 years. Can you tell us what is JSW Steel's coal requirement and therefore what is the maximum amount of coal you can bid for in the mines?
A: As far as coking coal is concerned, our annual requirement is around 7-8 million tonne per annum at the current level of production. So 7-8 million tonne will translate to 150 percent of that is around 10.5-11 million tonne. If you take 30 years, it is over 300 million tonne of the total requirement. If you look at resources, this is the final output which is required, so based on the stripping ratio we need more coal over 300 million tonne of the finished product means the actual requirement is over half a billion tonne plus based on stripping ratio.
Latha: You cannot take into account potential expansions; you have to go with 30 year projection of your current investment?
A: The restriction there is 80 percent of the end used plant should have been done and therefore we cannot take the potential, end used plant should be ready, so current requirement is relevant.
Latha: What is your sense though, do you expect that you are going to see a dramatic rise or at least some rise in your input prices, should we be prepared in FY16 for a pressure on margins on account of this?
A: We are anyhow importer of coking coal. If at all we are able to get locally the coking coal. I think it will reduce the cost instead of increasing the cost because we are importing it right now. As far as JSW Steel is concerned, I do not think it will have any negative impact.
JSW Steel stock price
On December 19, 2014, at 11:11 hrs JSW Steel was quoting at Rs 1057.00, up Rs 17.15, or 1.65 percent. The 52-week high of the share was Rs 1365.35 and the 52-week low was Rs 805.00.
The company's trailing 12-month (TTM) EPS was at Rs 124.82 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 8.47. The latest book value of the company is Rs 970.48 per share. At current value, the price-to-book value of the company is 1.09.
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