Kalyani Steels could be the beneficiary of a cut in lump iron ore prices by NMDC . The state owned company cut prices by Rs 100 per metric ton to Rs 2,950 per metric ton.
Kalyani steel which buys lump iron ore sees an impact of Rs 70-100 per tonne on their total manufacturing costs, says RK Goyal, MD, Kalyani Steels but then it is compensated by extra does of levies (taxation, royalty etc). Lump iron ore consumption is only 30 percent of the iron ore consumed by them, he adds.
However, he says any amount of reduction in raw material costs is always welcome.
Currently, the company is operating at 70 percent capacity utilisation.
Below is the transcript of RK Goyal’s interview with Sumaira Abidi & Latha Venkatesh on CNBC-TV18.
Sumaira: What kind of an impact could we see on the back of this price cut? Could your margins benefit significantly from here?
A: A decrease of around Rs 100 per metric tonne on iron ore lump will have definitely a impact of around Rs 70 -100 per tonne on our total manufacturing cost as lump composition is only 30 percent of the total iron ore we consume. Yes, it is a definitely welcome move and in this tough times whatever is the reduction in cost is always very welcome thing.
Latha: On the other hand what is happening to your own product prices? We relentlessly hear of cheaper steel hitting the Indian shores over the last quarter April-June how much have end product prices come down in the market?
A: As far as engineering steels are concerned total price reduction is close to between Rs 2,000 and 2,200 per metric tonne which is much larger than the overall reduction in commodity prices.
Latha: Your benefit from lower ore is somewhat neutralised by the fall in your end product prices as well?
A: That is very small as compared to price reduction which we are forced to pass on to our customer.
Sumaira: Could you tell us the prices in the last e-auction for the lumps and fines and how we could compare it with the NMDC price. Before the cut it was about Rs 1,960 per tonne for fines and about Rs 3,050 for lumps, am I correct?
A: It is very difficult to say because it depends on mine to mine, ore quality to quality and lot to lot so it is very difficult to say this is the price. There are various prices linked to the quality of ore for a particular lot which is auctioned.
Sumaira: Is the bidding getting more aggressive? Is that the kind of sense you are getting?
A: It is not getting very aggressively but then the base price which has been kept by the miners itself is very high.
Latha: What is the difference between the base price and landed price of ore for coastal plants? Can we expect more price cuts?
A: I am sure yes, they should be further price reduction but now there is a very high level of taxation in terms of Fringe benefit tax (FBT), royalty, district development fund, debt and over and above that the transportation cost.
Latha: What is the capacity utilisation at steel companies these days? If you all are caught with a raw material that won't fall much and end product prices that are falling freely?
A: I understand capacity utilisation are not that great basically because of very high dumping from various countries including China, Korea, Japan etc and at the same time market is not picking up.
Latha: What is your capacity utilisation?
A: We are able to utilise around 70 percent.
Latha: And the industry you think?
A: It is very difficult for me to comment on the industry once we have this third quarter results we will know.
Latha: Is it that coastal plants would be a little less badly off and plants in the interior would be even worse off?
A: I don't think very large quantity of iron ore is getting imported. Since it is not getting imported most of the plants are depended on local iron ore and hence it won't make much difference.
Source: Money control
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