JSW Steel expects higher H2 volumes to offset rising input costs

What led to profits more than tripling in Q2?

Demand improved in August and September as the monsoon weakened and public capital expenditure picked up, supporting a recovery in steel prices. Blast Furnace 3 at Vijayanagar reached about 90 per cent utilisation in September.

We also drew down 2.10 lakh tonnes of inventory built up in the first quarter. Despite higher input costs and geopolitical disruptions, stronger sales volumes helped improve absolute EBITDA. Capital expenditure exceeded ₹11,100 crore in the first half, largely funded through internal accruals.

Why is your EBITDA per tonne down sequentially?

Input costs, including coking coal, iron ore, ferroalloys, zinc and energy, increased, while net realisations fell. Costs rose by about ₹1,300 per tonne, and net realisations declined by ₹500, reducing margins by ₹1,800 per tonne from the previous quarter.

Coking coal prices will have an estimated $25 impact in the third quarter. However, price increases implemented in the previous quarter and in October should help offset this. Larger blast furnaces, operating efficiencies and lower fixed costs per tonne will also support margins. We expect higher second-half volumes to deliver better absolute EBITDA, with the possibility of some margin improvement.

Will steel prices remain firm in the third quarter?

The second half is seasonally stronger, and we expect consumption to rise from about 85 million tonnes in the first half to about 92 mt in the second, taking full-year demand to approximately 177 mt. Prices could remain range-bound, although further increases in input costs may necessitate additional price adjustments. Higher sales should support profitability.

Could rising imports constrain domestic price increases?

Imports and exports were broadly balanced in the first half, although finished steel imports increased. More than 60 per cent of imports came from free trade agreement countries, which warrants monitoring to ensure there is no significant trade diversion. China’s direct exports may moderate over the medium term as domestic production adjusts, although indirect exports through engineering goods and manufactured products are increasing.

How will you fund the capex programme?

Our debt has declined to about ₹44,000 crore, with net debt-to-EBITDA at 1.28 times and net debt-to-equity at 0.39 times. Our cash generation is improving as operations scale up. The total capex outlay as of October 1 is ₹1.48 lakh crore over five to six years, implying annual spending of ₹25,000-30,000 crore.

We expect to fund most of this through internal accruals, although additional borrowing may be required in years when growth accelerates. Our balance sheet provides sufficient headroom.

How exposed are you to rupee depreciation?

We have substantially reduced our foreign currency exposure. We repaid over ₹29,000 crore of debt in the first half, much of it was foreign currency debt, and prepaid a $500-million bond in October that was due in April next year. We also reported a forex gain of over ₹170 crore. We do not expect a material impact on the balance sheet or profit and loss account from our remaining overseas debt.

Will higher interest rates and weak monsoon affect your outlook?

The 25-basis-point rate increase is not material at this stage. Infrastructure spending, public capital expenditure and private investment remain supportive, while the government’s GST cuts and other reforms should help consumption. Early indications from the festival season are encouraging. Automotive, housing and appliances are showing resilience, while investments in roads and railways are improving connectivity and logistics efficiency.

We will monitor geopolitical developments and their short-term impact.

How will European carbon measures affect exports?

The Carbon Border Adjustment Mechanism, higher safeguard duties and reduced quotas will make exports to Europe more challenging. These measures also increase steel costs for European consumers. We will serve the market within available quotas, but our primary focus will remain India, which accounts for 87-90 per cent of our business.

Are you on track to meet your emissions targets guided by National Steel Policy?

We have committed to net zero by 2050. More than 1 GW of renewable energy capacity is operational, with another 1.5 GW under development. We are also deploying blast furnace technologies, including oxygen lancing, dehumidification and top-gas recovery, to reduce coal consumption. Energy efficiency, process improvements and greater circularity will lower both emissions and costs.