The Hindu Business Line : Rising demand offsets cost push for Jindal Stainless

A sustained upturn in input costs is an area of concern for Jindal Stainless, but continuing robust demand would help negate its impact, as it would be able to pass on cost increases, said a senior company official.

Prices of nickel, ferro chrome and ferro alloys, which are used in the manufacture of various grades of stainless steel, have been moving upwards.

Nickel prices have once again started rallying upwards since May 2004 on strong demand and low stocks. At Jindal Stainless, raw material costs account for 50-60 per cent of total sales.

"As demand for stainless steel continues to be strong, we will be able to pass on input costs increases to our end users," said Mr Arvind Parakh, Director - Finance, Jindal Stainless.

According to him, stainless steel manufacturers are pushing for further price increases because of shortage of stainless steel supply.

Demand for stainless steel has been bolstered by continuous growth in infrastructure building, construction and railways, which are recording double-digit growth rates. Recently, Bharat Earth Movers Ltd announced that it has put forward a proposal to the Railway Ministry to build high-speed trains.

"If Railways puts in place an upgradation plan, there will be a huge demand for stainless steel," Mr Parakh said.

Quoting the International Stainless Steel Forum, the company in its annual report, said stainless steel demand in Asia is expected to grow by 12 per cent annually over the next five years.

The company sees a sustained double-digit growth in demand for stainless steel prompting it go in for backward integration into a Rs 950-crore greenfield project in Orissa to produce ferro chrome, ferro manganese, silico manganese and coke-oven battery.

In terms of exports, Jindal Stainless is expected to increase its overseas sales by 10-15 per cent over last year's exports of $220 million.

"Despite a 70 per cent fall in exports in the first quarter, we should be able to end the year with overseas sales in excess of last year's performance," Mr Parakh said.

Strong domestic demand and delay in getting duty entitlement passbook (DEPB) benefits slowed down exports in the first quarter of the current fiscal; but should pick up in the next three quarters.

However, the company would continue to lower its exposure to China.

Already, exports to China have fallen to 82 per cent of Jindal's total exports from 90 per cent.

The company is betting on the South-East Asian region where demand is seen firm.

Recently, the company acquired a 50,000-tonne rolling plant in Indonesia.

Products from this plant will feed the market in that region.

To finance its ongoing expansion programme, the company is also seeking its shareholders' approval to raise up to $75 million at its annual general meeting scheduled for September 29.