Imports surged 23% to 7.18MT, putting pressure on domestic prices

Steel consumption rose 7.6% to 56.32 million tonnes (MT) in 2009-10 as against 52.35MT in the year-ago period, on account of rising demand from various sectors—including automobiles, white goods and construction.

However, production rose only 4.2% during the reporting period at 59.57MT over 57.16MT in the same period last year, according to provisional data obtained from the steel ministry.

Imports also surged by 23% to 7.18MT during the period, thereby further increasing the domestic availability of steel and putting pressure on local prices.

But exports continued to slide and fell by 28.7% to 3.16MT during the period on account of slow demand recovery in the primary market for Indian goods—Western markets—which are still to recover from the economic crisis.

Leading steel producers like Tata Steel and Rashtriya Ispat Nigam reported 10.5% provisional growth to 5.02MT, and 15.7% increase to 2.9MT, respectively, during April-March over the same period in the previous fiscal.

SAIL’s production increased a meagre 0.9% to 10.20MT against 10.11MT during the April-March period. The figures are provisional and could not be confirmed with the companies.

Moreover, in March alone, steel output rose 6.7% to 5.48MT over the year-ago period. Tata Steel saw output rising 6.4% at 4.6 lakh tonnes in the month against production of 4.35 lakh tonnes during the same month a year ago.

However, state-owned SAIL and RINL saw their March production surging by 32.6% to 1.26MT and 83.3% to 3.08 lakh tonnes, respectively.

Steel consumption in March increased by 6.8% to 5.45MT, over the same month in 2009.

In March, imports surged 35.7% to 5.66 lakh tonnes against 4.17 lakh tonnes last March, while exports nosedived 45.5% to 2.18 lakh tonnes from about 4 lakh tonnes shipped in March 2009.

Nikhil Gandhi, group chairman, SKIL Infrastructure Ltd (SKIL), talks to Amritha Pillay of Moneylife on his company’s stake purchase in Pipavav Shipyard and the group’s expansion plans in the port and power sectors

Amritha Pillay (ML): Tell us more about your planned initial public offering (IPO).
Nikhil Gandhi (NG): We would be raising around $300 million; the target is to come out with the IPO before the year end. We are in the process of preparing the draft red herring prospectus. Some amount of the raised money would be used to repay the debt raised for the stake in Pipavav Shipyard and part of it would be used for developing the shipyard further.

ML: What was the thought process behind the stake purchase in Pipavav Shipyard, given that you have sold your previous projects in the past?
NG: We had to sell some of our projects in the past because we did not have permanent capital. However, we now wish to demonstrate our capabilities in the infrastructure segment. We started with the 19.6% equity stake purchase in Pipavav Shipyard and now we want to list the SKIL Group, in order to demonstrate our capabilities. In case of the Pipavav Shipyard, Punj Lloyd Ltd had interest to sell as they wished to divert the money for other areas. It served both the companies’ interest. SKIL has always been a debt-free company. This was the first time we raised debt before we went for this corporate action.

ML: Tell us more about this debt that you had raised to facilitate your stake purchase in Pipavav Shipyard?
NG: We raised the money two years back. SKIL sold its stakes to a host of investors including AIG for $35 million.

ML: The Pipavav Shipyard has now completed one year of commercial operations. How has the going been?
NG: Fortunately, the going has been good. While Chinese shipyards had 90% of their shipbuilding contracts cancelled, we had no cancellations. There had been certain discussions for reduction in prices, but no orders were cancelled. One reason for this is that during the boom period when prices were moving upwards, we did not hike our prices. We have recorded our year’s revenue and they will be in line with our expectations. We expect significant growth in the coming year as well.

ML: So will the group concentrate only on the shipyard business?
NG: No, we plan to expand our presence across the shipbuilding, power, port and logistics segments. These are our core competencies. We will not be going out of these core competencies. It is very easy to fall prey to temptations, which we will avoid. We have already done the port and logistics business in the past. For power, we have enough expertise within the group, we decided that we will work on the new projects only when the existing projects are completed—this is our policy.

ML: Tell us more about your expansion plans in the power segment.
NG: We intend to develop 1,320MW of thermal power. We may also have a couple of other prominent shareholders with whom we are in negotiations with right now. Once the negotiations are completed, we will freeze these projects as well. But SKIL will continue to have a 51% controlling stake in these power projects. {break}

ML: In which States are these power plants being planned?
NG: We have identified two sites—one in Maharashtra and one in Gujarat. Both our sites are along the waterfront and will be run on imported coal. Land acquisition is not an issue for us. The choice of site will depend on the comfort level of our partners. We may start power plants in both States. Our short-term plan is 1,320 MW; however, the long-term plan is 1320x2MW, for which we may need both these sites.

ML: What is the main reason for concentration on the western side of the country?
NG: I don’t intend to spread my wings too far. With the current management bandwidth, we wished to stay focused on a couple of States only, rather than going all over the country and the world and then mess around with investor faith, confidence and money. It has taken a long time to build the company and its reputation.

ML: What about your plans in the ports segment?
NG: Having worked on the port and logistics (segments) in the past, I cannot stay away from these sectors. We are partnering with the Port of Rotterdam, and SKIL Group would be their first global partner from the private sector.

ML: Where are these ports being planned?
NG: We plan two ports—on both the western and eastern coasts. We are going through the formalities and the environmental clearance process. On the east coast, our concentration would be on the bulk side, (but) we will also cater to container traffic to a certain extent. In bulk, the concentration is on coal as many new coal-based power plants are planned in the country. I am primarily looking at Kerala as an option and the second option is Andhra Pradesh, or maybe both. The port capacity for the one planned on the eastern coast would be minimum 25 million tonnes of bulk cargo and a million TEUs (twenty-foot equivalent units) of container cargo.

The western port would be focussed on the transhipment of containers. In India we do not have a hub port. The aim is to build the first hub port. Today, India-bound cargo goes away to Jebel Ali, Colombo and Singapore. Instead, we would see that the cargo comes to our port and the transhipment happens from our port to other parts of the country. The capacity would be around 3 million TEUs in the first phase and then (the capacity would) depend on further growth plans.

ML: How different would this west coast port be from the Vallarpadam (Kerala) port, which is planned as a similar transhipment hub?
NG: The Vallarpadam port would be servicing the eastern side. However, two-thirds of the cargo is moved along the western coast. Another important factor is that India has almost the same population as China; however, in terms of port capacities, we are just one-tenth of China’s capacity. If the Indian economy grows at a minimum of 6% per annum, we will run out of all our port capacities in the next five years. Thus, port capacities need to be developed very rapidly.

ML: How do you plan the investments required for these expansion projects?
NG: The investment in the port segment would be around Rs3,000 crore in the first phase. Later, depending on the phase-wise development, an additional Rs3,000 to Rs4,000 crore would be infused. All these projects would be through special purpose vehicles (SPVs). We will raise fresh capital for SKIL. These SPVs would be raising debt on their own (either) from the global market or the Indian market. However, we have been very conservative in (our) debt-raising (plans).

ML: In the long term, will we see these SPVs being listed as well?
NG: I believe that on an average, we might have one company per year going for listing, going forward. We have been very conservative and (have) never tapped the market, and in turn, we have lost a lot. We were forced to sell our projects in advance; we did not have permanent capital. We had to pay back to our investors as private capital is short term (in nature). Thus, slowly and steadily, we will take each of our companies to the capital market depending on the appetite and the financial advice available.

Strong US jobs report and other bullish economic data shore up prices

Oil raced toward $86 a barrel in Asian trade today, extending gains on demand optimism amid signs of a global economic upswing, analysts said.

New York’s light sweet crude for delivery in May was up 84 cents to $85.71 a barrel. New York crude briefly traded above $85 last week, its highest level since 9 October 2008, reports PTI.

Brent North Sea crude for May climbed 72 cents to $84.73 a barrel.

Analysts said the market’s rally was helped by a string of bullish economic data, including Friday’s US jobs report, which showed the biggest growth in three years, raising recovery hopes for the world's largest economy.

“Many traders also bought ahead of the long weekend and now we have some momentum carrying the trade forward and pushing prices up,” said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

Investor sentiment was also boosted by last week’s data showing the US manufacturing sector grew at a faster pace than expected and a government report that said Chinese manufacturing picked up in March.

Manufacturing in the eurozone also defied forecasts in March, with a key index hitting a 40-month high.

A weaker dollar which makes dollar-priced commodities like crude cheaper for investors using other currencies have also helped push oil prices higher, analysts said.