The Managing Director Mr. Ashok Pandit was invited for a live interview by CNBC in its Corporate Radar programme on the 12th November 2004. While answering the questions, he expressed his views on Tata Sponge Iron Ltd. emerging as a key player in the buoyant sponge iron market.
Excerpts from the interview of Mr. Ashok Pandit with CNBC.
CNBC: Do you give us a sense of how prices are moving, because we believe that reading at about Rs.11,000. Sustainable rise?
Pandit: Yes, I would say so because of basically a change in technology in steel plants going from open hearth ingots to BOF caster, the scrap generation has reduced from 30% to only 3%. That means 27% of the total scrap entering into steel making over the last 40 years has gone. And today with China consuming almost 300 million tons of steel, and having a lot of electric furnaces, is taking up all the scrap in the world. So the result is that India is starved. And you know, we are taking scrap from war-torn countries with all kinds of explosives and all that coming in, for which the Government is bound to put an embargo. And the result is that the sponge-iron prices, which is the only substitute for steel scrap is in big demand.
CNBC: Mr. Pandit, there is a genuine demand out there, what does it really mean for prices going forward, it is already at around Rs.11,000-11,200. How much of the upside you see?
Pandit: Well, I see it going up to about Rs.12,000-13,000. All depends on the availability of scrap.
CNBC: On the other hand you’ve had pressure on the raw material costs, because your margins are under pressure. You source most of your raw material needs from Tata Steel. Tell us what is the picture over there is. Do you think the margins are likely to improve now?
Pandit: The raw material price going up, particularly iron-ore prices, is mainly because of a supply-demand crunch. The Government owned mines like OMDC, OMC and others, and NMDC, are not producing sufficiently to cater to the demand, and therefore if there is going to be a shortage of supply, obviously prices are going to go up. But then there are two kinds of prices; one are the long term prices, which are stable because they are on yearly contracts, and the other ones are the spot prices which can go up to, say Rs. 2,000 a ton.
CNBC: You spoke about the demand-supply situation in the scrap market. What‘s the situation in the sponge iron market? Are you seeing fresh supplies coming in, which could actually put pressure on prices?
Pandit: Well, a lot of new plants are being installed, but the gap in metallics is so huge, that it would take quite sometime before you would even think of there being an over supply of sponge iron in the market, which means that the future looks quite promising for sponge iron manufacturers.
CNBC: You don’t see any resistance from the people you sell to, because prices have gone up quite a bit and you are reliant on a few large players in the same group. Is there any kind of negotiating resistance which is coming in saying ‘we don’t want to give into higher prices anymore’?
Pandit: It can’t be. There’s no alternative. I mean the only alternative is steel scrap, and that’s a problem, because it is not available. Even the World War II ships that were coming and being cut up are all gone.
CNBC: Mr. Pandit, you supply a lot of sponge to actually Tata Steel. How much bargaining power do you have with them? Can you pass on all the price increases to them?
Pandit: Arm’s length. Arm’s length. That means we supply them at market price, and we buy ore from them at market price. So it’s an arm’s length relationship.
CNBC: What full year figures can one expect from Tata Sponge given the fact that the prices are going to go up and you say the margins could be under control.
Pandit: I cannot predict profits, but it will be a good year.
CNBC: Well, price is one part of it Mr. Pandit, but what about volume growth? Are you selling full capacity or can we expect any kind of volume growth this year at all?
Pandit: In this business you always operate at capacity and sell capacity, because the question is price. And you can always lower price to sell more. We are adding to capacity. We are about to begin the installation of our third kiln, and then over the horizon we have plans to put 4th, 5th and 6th kilns. And these are large 500 ton kilns. So, our capacity is going to go up from about 2.5 lakh tons to 8.5 lakh tons in a matter of next 3-4 years, because the demand is there.
CNBC: You said Rs.13,000. You expect that price to be hit in next 3 to 6 months?
Pandit: Well, spot prices of sponge iron could go up to 13,000 say within a month or two.
CNBC: You will sell at that price?
Pandit: If the prices go up, people will start buying at that price. Not a question of my saying, it’s a question of people buying. Well, they had been at that level earlier. It’s not the first time.
CNBC: Good luck Mr. Pandit. Thanks for joining us.
Pandit: Thank you very much. It was a pleasure.