Financial Daily from THE HINDU group of publications
Wednesday, Jul 14, 2004
`Steel prices unlikely to shoot up immediately'
Mr B.K. Panda, Chairman-cum-Managing Director, Vizag Steel.
Visakhapatnam , July 13
FROM an extremely turbulent and uncertain past Vizag Steel Plant (VSP) belonging to the Central public sector unit, Rashtriya Ispat Nigam Ltd, has come a long way to become a zero-deficit company. Sales are soaring and profits rising.
The company has also worked out an ambitious expansion plan for increasing its capacity from the present level of 3.5 million tonnes per annum to 10 million tonnes per annum by 2018 in two phases.
Talking to Business Line, Mr B.K. Panda, Chairman-cum-Managing Director of RINL, discussed in detail the company's future plans and the steel industry in general.
The Union Finance Minister in his Budget has dealt some severe blows to the steel sector by reducing the Customs duty and increasing the excise duty. How far it would affect the domestic steel industry?
First take the Customs duty for steel imports. It has been reduced from 20 per cent to 15 per cent. This is the second reduction in Customs duty during this year. Despite the reduction in the duty, the landed price of imported steel is higher than the domestic prices of steel. Hence, domestic producers are unlikely to be affected on this account. Second, the excise duty on steel has been increased to 12 per cent from eight per cent. This will certainly hit the steel industry. In all probability it is likely to be passed on to the consumers.
So you feel that steel prices would further harden with Union Finance Ministry's decision?
Steel prices are no longer dependent on any one factor. Global steel prices also play an important role. I also do not think that the raw material prices for the steel industry would increase a lot in the near future. As a result it is unlikely that the steel prices will shoot up immediately. If that be the situation, then the producers will have to absorb the increase in the excise duties. The situation is fluid. It is not possible to make a categorical statement on the prices just because the excise duties have been increased.
In 1998, Union Government converted the Rs 3,330-crore loan in equity and the Rs 791-crore interest into preference shares. Following it, the company has become zero debt from October 2003. Where would you like to take RINL from here on?
During 2003-04, RINL registered a net profit of Rs 1,547 crore, marking a growth of 197 per cent from Rs 521 crore over the previous year. Total sales of the company increased by 22 per cent to Rs 6,169 crore from Rs 5,058 crore. For the current financial year, we are hoping to register a turnover of Rs 7,000 crore. Profitability is expected to increase further. On the techno-economic parameters, the plant has bettered on almost all the accounts during 2003-04 compared to the previous year. Similarly we have recorded growth on the production front. Production of hot metal, liquid steel and saleable steel increased by three, five and four per cent respectively.
What about the capacity expansion plans of VSP?
In the first phase we hope to increase the capacity of the plant from 3.5 million tonnes per annum to five million tonnes per annum by 2008 and then further to 10 million tonnes per annum by 2018. The total cost of the project has been worked out at Rs 17,000 crore. The first phase would cost Rs 3,000 crore, from which Rs 2,400 crore would be generated internally and the rest Rs 600 crore would be brought in by a partner who would operate on a BOT (build-own-transfer) basis. We are looking for partners in Italy, Austria and Germany. The feasibility report of the first phase is being prepared by Dasturco and it is likely to be ready by the end of August, this year. All these details have been accounted in our corporate plan and it was approved by the board.
What are your plans for coal and iron ore mining?
For coal mining we are talking with the Australian companies. We are holding similar dialogues with a Canadian company. If we go ahead it would be a joint venture. Talks are going on but nothing has been finalised. However, our dependence on coal will reduce once we are through with the capacity expansion programme. The new blast furnace can run on gas. Already companies such as GAIL, ONGC and Gujarat Petrochemicals have assured us to supply gas.
Regarding iron ore, we are talking with the Orissa and Chhattisgarh State governments.
We have applied for iron ore blocks. In Chhattisgarh we have applied for Rowghat and in Orissa we have applied for Malatoli. We are confident both would be awarded to us. We are going to invest around Rs 500 crore each for coal and iron ore mining.
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