JSW Steel has cut capex plans by 20 per cent this year becoming the latest victim of a global commodity price plunge that has spooked global markets and threatened the growth prospects of many countries. The Sajjan Jindal-led steel firm will spend only Rs 6,000 crore for the year ending March versus the earlier estimated Rs 7,500 crore.
Seshagiri Rao, JSW steel's joint managing director and group CFO told ET that all capital expenditure plans will be reviewed in May this year but added that the firm is sticking to its goal of producing 40 million tonnes of steel by 2025. "Apart from iron ore prices, it will depend on Indian demand situation and government initiatives with regard to curtailing imports because there is dumping happening into India," Rao said.
A sharp slowdown in China has caused global commodity prices to tumble to multi-year lows with iron ore and coal prices falling to five year lows recently. Crude oil, which had ruled over $100 per barrel till June last year, has also fallen steeply hurting profitability at global oil majors and threatening growth prospects of oil exporting countries such as Russia and Venezuela.
Oil major Cairn India said recently said it will cut its capex plans in light of the worrisome crude price scenario. Indian iron prices have generally been lower than global prices.
The crash in international markets, however, has not been accompanied by a fall in local prices due to scarcity of the raw material thanks to mine closures. This has placed Indian steel companies at a disadvantage. Also, the global steel price fall and overcapacity in China has hurt margins of local players forcing them to consider conserving cash.
While international prices for 62 FE quality iron ore fell by half in the last one year to about $68.68 (Rs 4,218) per tonne, National Mineral Development Corporation (NMDC) price for 64 FE iron ore rose 14 per cent to Rs 3,607 per tonne during the same period, according to JSW Steel. Higher FE (ferrous) content demands better prices. This has hurt JSW Steel far more than its biggest competitors — Tata Steel and Steel Authority of India, which get cheaper ore from captive mines. Besides, the government has not restricted cheap import of steel from China and Russia, which in turn has put pressure on the selling price.
However, analysts view this as just a deferment of capital expenditure and expect the spending to be back once demand picks up in the second half of 2015. They expect iron ore prices to fall and foresee the government putting some tariff barriers to restrict imports.
Source:economictimes.indiatimes.com
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