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CHAIRMAN AND MANAGING DIRECTOR'S MESSAGE:
2012–13 has been a rather challenging year for the steel industry and for the Indian economy as a whole. The year started with concerns about the global economic slowdown on account of fiscal imbalances, and reduced trade and investments in advanced economies. These concerns sustained throughout FY 2012–13 and prevented the world from achieving any sort of meaningful recovery. The domestic economy too suffered a decade–low GDP growth of 5% not only on account of global headwinds but also due to RBI's liquidity tightening measures, a constrained investment pipeline as well as a widening current account deficit.
The global steel industry is also going through a challenging phase, which has been aggravated by excess capacity and weak demand growth. Globally, there is an installed crude steel capacity of about 2 billion tonnes per annum, with China accounting for around 50% share. In contrast, 2012 global finished steel consumption stood at 1.4 billion tonnes, with China accounting for about 46% share. The global industry is under pressure on account of a widening gap between demand and supply in China and in the absence of consolidation.
The domestic steel industry faced significant impediments in the form of weak demand growth of 3.3%, the lowest since 2009. The elasticity of steel demand to GDP growth in FY 2012–13 stood at 0.65, compared to a 10–year average of 1.16, indicating a less steel intensive phase of growth.
Moreover, there was pressure of rising imports, especially from countries with which India has signed Free Trade Agreements (FTA) like Japan and South Korea.
Harnessing our resilience
In difficult times, your company taps its inherent strengths to adapt to changing circumstances and devise new ways to deal with adversities. I am happy to inform you that this is precisely what we achieved. As you are aware, the ban on iron ore mining in Karnataka, imposed in July 2011, impacted us severely. As a result, in order to remain competitive, we channelised our innovative energy and, in a true measure of resilience, adopted a series of initiatives to mitigate the impact of this adversity.
To begin with, we successfully used low–grade iron ore material. Our decision to build a 20 MTPA beneficiation plant stood us in good stead, and allowed us to utilise extremely inferior grade iron ore material to make steel. In doing so, we have developed a know–how, which can meaningfully extend the mine–life of iron ore resources in Karnataka's Bellary–Hospet region. We are now investing in R&D to reduce our dependence on high quality iron ore and substitute it with inferior iron ore feedstock.
We also modified our fuel blend, which helped us arrest cost increase meaningfully. Although the use of inferior grade material impacted both our furnace productivity and fuel rates adversely, we have been able to achieve the production guidance for FY 2012–13. With the gradual resumption of iron ore mining in Karnataka, we are hopeful of the iron ore quality improving in the coming months, which will help us in improving our productivity and utilisation.
Despite sluggish demand, rising imports and constrained availability of quality iron ore, our overall sales increased by 14% to 8.9 MnT. Domestic sales grew by 9% to account for 7 MnT of total sales. As a result, our overall share in the domestic market increased to 10% and our contribution to the country's incremental demand growth in 2012–13 stood at 26%. We also capitalised our global competitiveness by increasing export sales by 32% to 1.9 MnT during the year, when the country's finished steel exports grew by 15%.
We continue to invest in improving productivity and efficiency, enriching product portfolio and preparing ourselves for future opportunities. Towards this, we completed the second phase of our 20 MTPA beneficiation plant; enhanced capacities of Corex II, Blast Furnace 2 and Hot Strip Mill 2 at Vijayanagar; upgraded the continuous galvanising line at Vasind; enhanced the capacity of colour–coating lines at Tarapur and installed a state–of–the–art 0.15 MTPA construction grade colour–coating lines at Vasind, to name a few.
Exploring growth avenues
Your company is in the process of implementing a Composite Scheme of Arrangement and Amalgamation through which JSW ISPAT Steel is being merged with JSW Steel. After requisite statutory approvals, the Honourable High Court of Judicature at Bombay sanctioned the said scheme on May 3, 2013.
To enrich our product portfolio, we are implementing the following projects:
i. A state–of–the–art appliance grade 0.075 MTPA Colour Coating Line at Vasind
ii. A new CSD5 0.2 MTPA Galvanising Line with dual products of Galvanised and Galvalume Steel at Tarapur
iii. A new 2.3 MTPA Cold Rolling Mill 2 at Vijayanagar: Phase I is expected to be commissioned by FY 2013–14 and Phase II is expected to be commissioned by FY 2014–15
iv. Phase I of a new 0.2 MTPA non–grain Oriented Electrical Steel facility is expected to be commissioned by FY 2014–15
Your company is committed to the 10 MTPA integrated steel project in West Bengal and have made significant progress in securing the requisite regulatory clearances during the year. An application for prospecting license has been made through the West Bengal Mineral Development & Trading Corporation (WBMDTC) for an iron ore concession in Jharkhand. Simultaneously, we are also working towards securing long–term iron ore supply arrangement from third parties. Once iron ore sourcing is tied up, project work will be further expedited.
The Ministry of Environment & Forest (MoEF) granted the Stage – 1 Forest Clearance for iron and manganese ore mining project in Ankua and the Rohne coking coal block in Jharkhand.
For the Greenfield project in Jharkhand, your company is pursuing various approvals / clearances for raw material linkages, land acquisition, environmental clearance and other statutory clearances.
The road ahead
High Current Account Deficit (CAD) levels and a consequent weakening of the domestic currency create severe impediments to the sustainable growth of India's economy. The Government of India must adopt measures to bridge the high CAD levels and adopt policies to enhance exports. This requires a shift from a regime of deficits and supply bottlenecks, which can only be achieved by enhancing new capacities. For this, clearances for various investment projects, which have been in the works for a long time, need to be facilitated on an expeditious basis.
India is endowed with a rich mineral deposit base, which needs to be tapped sustainably to support growth in the domestic industry. If we do not employ measures to gainfully utilise this mineral wealth for the benefit of our population in the near future, our nation will loose out on a great opportunity to gain prosperity. In a few decades, with the vast amount of scrap generation, the use of iron ore will become limited. Similarly, usage of fossil fuels like coal is likely to decline sharply in a few decades, given rapid technological advances and an increased focus on renewable energy. Therefore, the government should make all efforts to encourage opening up of these mineral deposits over the next few years in an environmentally sustainable manner.
JSW Steel's business vision is centred on sustainability. We realise that only by creating a sustainable future, we can pave the way to help shape a self–reliant India. We believe that inclusive growth is the visible manifestation of sustainable prosperity, hence we focus on offering value to all our stakeholders. Our employees have been instrumental in providing a robust foundation for JSW Steel, from where we draw inspiration and continuously strive to set new benchmarks.
We are optimistic and remain committed to India's growth story. We believe that India's long–term growth potential remains intact, supported by structural trends of attractive demographics, rising industrialisation and urbanisation. We are confident that our resilience will allow us to make the most of the available opportunities. We look forward to enjoying your support during our journey.
Chairman & Managing Director