JSW Steel Limited (500228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to JSW Steel Limited Q2 FY '21 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumangal Nevatia from Kotak Securities. Thank you, and over to you, sir.

Yes. Thanks, Nirav. Good evening, everyone. Thanks for joining today for JSW Steel's 2Q FY '21 earnings call. I would first like to thank the management of JSW Steel for giving Kotak Securities the opportunity to host the call today. I would now like to hand over the call to Vishesh Pachnanda from Investor Relations at JSW Steel to introduce the management and take the call forward. Over to you Vishesh.

Thank you very much, Sumangal. Thank you, Kotak, for organizing this call. A very good evening to all the participants. I'm pleased to welcome you to the second quarter of fiscal year 2021 results call of JSW Steel. We have with us today the management team of JSW Steel represented by Mr. Seshagiri Rao, the Joint Managing Director and Group CFO; Mr. Jayant Acharya, Director, Commercial and Marketing; and Mr. Rajeev Pai, CFO. We will start with a few minutes of opening remarks by Mr. Rao, and then we can open the floor for Q&A. With that and without any further delay, over to Mr. Rao. Thank you.

Participants, please stay connected, line for the management has dropped. Ladies and gentlemen, thank you for your patience. We have the line for the management connected back to the call. Sir, you may go ahead with the opening remarks.

Yes. Good evening, welcome you all again. We have started the quarter with the economic recovery contraction, very, very deep comments coming in that contraction would be very, very deep and very, very large. But as the quarter progressed, the severity of contraction is becoming lesser and lesser. Let's say, we have seen IMF revising their economic growth in India, negative 4.4% as against 5.2%, which they have given in the -- earlier. In line with this trend line, global steel demand also we have seen similar pattern. The demand recovery is uneven. One side the $550 billion of stimulus package that has been announced by China. More than 50% was intended for industries where steel demand can go up. So that was quite positive. The result of that is Chinese steel production went up quite substantially, and their imports have increased also significantly. Their exports have fallen by 20%. So all will -- all led to very good consumption growth as far as China is concerned, which is not the scenario if I look at the rest of the world. So if I see the total production numbers in the first 9 months of -- first 8 months of the calendar year, rest of the world has reduced the production in line with the slow recovery in the demand, whereas China is concerned, increased the production during the same period. So therefore, the recovery, what we are seeing, either in the steel demand or economic recovery is uneven, it is not even across all locations. China is doing extremely well, and at the same time rest of the world is very, very slow. Even the WSA short-range outlook, which they have released very recently, it is also anticipating that the 2020 calendar year, the steel demand will be lower by 2.4%, which is 42 million tonnes, whereas China steel demand growth will be 8%, which is 72 million tonne plus. But the rest of the world is interesting, that is 114 million tonne will be lower steel demand over previous year, that is 13% lower. So it is also in line with supply adjustments. What is today bringing balance as far as steel industry is concerned, wherever demand recovery is slow, there the supply adjustment is very steep, in line with the recovery in the steel demand. Whereas, wherever there is a strong recovery like China, production also increased and their exports have fallen, and their imports have more than doubled. So because of these reasons, we are seeing a good recovery in the steel prices and the situation is expected to continue in this quarter and the next quarter, that is how we are seeing as regards to steel industry outlook is concerned. In India, the business sentiment improved and there is a broad-based recovery across all the sectors we are seeing. There's a good traction we are seeing in the coated steel products, appliances, packaging, solar and also government-aided projects. This is also reflected by way of improvement in the consumption over Q1. In the Q1, the fall in steel demand was over 50%, whereas in the quarter 2, it is around 10%. So therefore, there is a good recovery even in the Indian steel consumption is concerned. In the light of these developments, if I look at JSW Steel, we have improved our capacity utilization to 86%, and we have posted crude steel production of 3.85 million tonnes. We could have done much better than 3.85 million tonne because of lack of iron ore supply from Chhattisgarh and also in Vijayanagar, logistics constraints in moving material from our own mines in Odisha, we suffered in improving the capacity utilization better than 86% in the quarter 2. The sales consolidated is 4.15 million tonne, which is also a significant growth year-on-year 17% quarter-on-quarter with 49% growth. But what is very interesting in the volume of sales, our domestic sales quarter-on-quarter went up by 2.5x. Our exports have been reduced to 28% of the total sales. What is also interesting here is auto sales have gone up by 392% quarter-on-quarter and year-on-year, it went up by 33%. There is a good traction from the auto sector. Nobody expected this type of revival in the auto sector, even though commercial vehicle sector is still lagging behind, but we are seeing very good improvement as regards to offtake by auto sector with the increase in sales of 33% year-on-year. Our -- the special products and the other products where high margins are there, there the composition has gone up to 51% of the total sales, and it has gone up by 29%, quarter-on-quarter it went up by 100%. So in this quarter, we have highest ever coated sales and highest ever appliances sales. And also there is a good traction from solar and other segments of the steel user industry. The NSR has improved by 11%, but year-on-year it's still negative by 2%. We have worked on the costs very hard. We have reduced our costs quarter-on-quarter by 5%, year-on-year by 11%. The margins on stand-alone basis, INR 10,141 per tonne as against INR 5,102 in the quarter 1. So there is a significant improvement of over INR 5,000 per tonne EBITDA. Out of that, INR 1,300 is contributed by cost balanced by NSR. The EBITDA on a stand-alone company was INR 4,176 crores, an improvement of 62% year-on-year. The profit after tax on stand-alone is INR 1,692 crores. The Indian subsidiaries have done well, particularly the coated, its EBITDA is INR 288 crores. It posted an EBITDA per tonne of INR 4,700, a significant improvement in the performance of coated, in terms of volumes, in terms of cost, in terms of NSR. ARCL and industrial gases, VIPL all did very well. After adjusting consolidated adjustments and Ind AS adjustments, the Indian subsidiaries have net-net contributed INR 289 crores. As far as overseas is concerned, the losses have come down. If I take out one-off items, the cumulative losses for all the locations together in the quarter was INR 213 crores. There are one off items from Italy, where we have made certain provisions and also there are certain gains which have come in from U.S. operations, either settlement of disputed claims and also PPP program grants. Both together, if I take out the net benefit is INR 161 crores. So INR 213 crore loss and INR 161 crores of gain. So net-net, there is a loss of INR 52 crores from overseas. So if I take the benefit of INR 289 crores from Indian subsidiaries and INR 52 crores negative from overseas subsidiaries, net-net, there is a contribution in consolidation, INR 238 crores. So the consolidated EBITDA, therefore, at INR 4,414 crores, which is higher by INR 238 crores. The profit after tax on a consolidated basis is INR 1,595 crores. In this quarter, we could reduce our inventory by INR 4,75,000 crores. We have released working capital in this quarter. Over and above that, there is an exchange rate benefit because the rupee appreciated. Both together, our debt is reduced by INR 1,635 crores. So the net debt was INR 52,892 crores as on 30th of September. Our debt to equity, debt to EBITDA, all the ratios have improved. As regards to projects, we are happy to share that the migrant workers who left because of the COVID, all have come back. There is a good momentum in the project implementation. In Dolvi, we are confident that we'll be able to complete by March 31, 2021. Now there are more than 14,000 workers working at Dolvi. At Vijayanagar also there is a good improvement in terms of workers coming back. We're happy to say that the wire rod mill of 1.2 million tonne has been commissioned, the trial run production -- trial runs are underway. The pellet plant of 8 million tonne capacity at Vijayanagar is very, very advanced stage. We will commission in this quarter. The other projects either downstream or Dolvi or other projects at Vijayanagar, so we are working on to complete as per the guidance we have given. The capital expenditure, cash flow basis, we have spent INR 4,411 crores so far. As regards to our guidance of 15 million tonne sales, we're very confident that we'll be able to achieve the sales volume guidance of 15 million tonne in this year. As far as the production guidance are concerned, we have lost 1.2 million tonnes in the quarter 1. We tried our best to recover part of that quantities in the Q2. As I mentioned, due to iron ore supply constraint, we could only achieve a flat production on year-on-year basis in the Q2. So we are making every effort to make up some of the shortfalls we have got in the -- we have registered in the Q1, in the Q3 and Q4. Therefore, on the production guidance side, there could be some shortfall to the guidance we have given at 16, but sales volume, we will achieve. The acquisition side, the Asian Colour Coated, in the NCLT, our resolution plan, it was pronounced in the open court that it was approved with some modifications. We're waiting for the detailed order. It is not yet uploaded. As and when it comes in, we study that and we will go ahead in implementing the resolution plan in the Asian Colour Coated. In the case of BPSL, it is posted for final hearing on 3rd of November. So once the Supreme Court adjudicates on the matter, we will complete Bhushan Power & Steel. So this is how we are seeing as regards to Q3 and Q4. We -- it appears the demand momentum is quite strong in the market. So the Indian economy, we expect to recover further, majorly the rural- focused fiscal and monetary policies of the government. That should stimulate more and more demand from the rural segment in addition to the other sectors of the economy. So Q3 and Q4, we -- our volumes, whatever we are guiding, we will be able to achieve. With that, I will close it here and any clarifications we can take. Thank you.

[Operator Instructions] First question is from the line of Anuj Singla from Bank of America.

So sir, first question is with regards to the steel price hike, which we have taken in the domestic market, would you be able to quantify what kind of hikes we have taken? There was news flow, there was a INR 2,000 hike in early October. Has it been absorbed by the market? And what kind of pricing recovery we can see on a sequential basis in the third quarter?

Yes. So pricing, as we exited the September end, there was a gap between international prices and domestic prices. Domestic prices were at a discount to the international prices by about 5% to 6%. And in October, we have taken an increase. And by and large, that has got absorbed. As far as quarter 3 outlook is concerned, I think, while quantification at this point would be difficult, but what would be a positive is that the quarterly and the half yearly contracts are due for revision and increase. So that is getting finalized, automotive and other quarterly contracts. So that would be a positive as far as the pricing is concerned in this quarter.

Okay. Understood. And can you give a similar maybe guidance on the coking coal cost? What was the cost this quarter and next quarter? What can we anticipate?

Yes. So coking coal cost, I think last time we had indicated that it would drop in the quarter 2 by $20, $25. So we have been able to be at around that level. And in the -- I think the numbers were close to $120-odd CFR level on a blended basis. And we expect that the coal has been -- coking coal has been a little volatile. You have seen the markets. It went up because of the blast furnaces, some of the supply chains restarting. But again because of the Chinese restriction on Australian coal, business sentiments on the coking coal side took a dip, so prices have gone down. So it is going to be a little volatile. So we would say that in this quarter, the price range would be similar or rather, the cost would be similar to the last quarter.

And second question, sir, with regards to the iron ore mines in Odisha. While we have started producing there, like you mentioned, logistic constraints are still hampering our supplies from Odisha to our plants. Sir, what is the market feedback there? When can we expect that supply to ramp up? And do you see because of the supply issues in Odisha, is there an upside risk to the iron ore prices in the domestic market?

Shortage of iron ore is definitely perceived today by the steel industry. There are 2 reasons: One is production is lower in Odisha because all the 19 mines which have been auctioned, only 5 mines became operational today, balance still to become operational. Even these 5 mines, they are not able to ramp up capacity because of evacuation issues. The existing mining companies have time up to 31st October to evacuate their material. Some of them are trying to get extension by going to the courts. We're not sure whether they will get the extension or not. So therefore, the iron ore shortage is a problem. The second issue is more exports of iron ore from India. Not only iron ore, even pellet exports have gone up quite substantially in the last 6 months. These 2 together is a problem which we need to manage. Whereas we are concerned, we have -- we are ramping up the production and also trying to evacuate the material by direct shipping either to Dolvi or Vijayanagar instead of bringing it through a port. So that is making us to improve the supplies to our locations. If 31st October extension is not given, I think we'll be in a better position in terms of evacuation of material from Odisha.

[Operator Instructions] Next participant is Amit Dixit from Edelweiss Securities.

Congratulations for a good set of numbers. I have a couple of questions. The first one is on the other subsidiaries. So is there -- I mean, can you indicate when the -- I mean, overseas subsidiaries will be profitable? Or when do you see the performance improving from this level? That was the first question... Yes?

Yes. Please continue.

No, no. So I was just asking that when can we expect -- what is the road map to the improvement of overseas subsidiaries profitability, particularly when we have seen that prices in Europe and U.S. have also risen in this quarter. So do you expect these subsidiaries to be profitable in Q3? Or I mean, Q4, at least?

No. If you see the average operating losses from overseas subsidiaries are gradually coming down. That is one positive, which used to be INR 335 crores in the Q2 of last year. The number which I just shared with you is INR 213 crores without one-off items. So therefore, there is a significant reduction in the operating losses. We were expecting that the Baytown will do well at least in the Q4. But unfortunately, there is again a change in law there. The imports from Brazil, they have restricted, the quota they have restricted. With that, the availability of slabs to Baytown had become a challenge to continue -- for continuing operations. So we have taken the shutdown of Mingo for ramping up, which would come into production only in March 2021. So until the time Baytown had to depend on the imported slabs. Due to these restriction on the quota, so they are not able to get the slabs. So it is decided even Baytown would take the shutdown temporarily until Mingo comes in operation. So we have minimized the losses, both at Baytown and Mingo. So we'll restart both of this in the month of March 2021. So we can see a good improvement in the operations side, starting from quarter 1 of next financial year. As regards to Italy, there also the operating losses are coming down. There is also -- we expect improvement in Q3 and Q4 over what we have seen in the Q1 and Q2.

Okay. Great. Sir, the second question is with respect to power and fuel cost in stand-alone operations. So if I see, that has gone down both sequentially as well as year-on-year. So I mean, what do we -- what is the main driver of the decline in power and fuel cost year-on-year, sorry not sequentially, year-on-year. But if you look at per tonne basis, it has gone down. So is it -- I mean, what is the driver there? And is it sustainable, this decline?

No. Majorly, it is natural gas price. Natural gas prices have come down. If you see year-on-year basis, you must have seen the spot prices, the way it has fallen per LNG. So that enabled us to reduce the prices, particularly in Dolvi unit. Over and above that, the power cost is also lower because thermal coal prices have come down. So this has contributed for lower power cost and the lower gas prices, which is reflected by the lower power and fuel cost.

Next participant is Pinakin Parekh from JPMorgan Chase.

Sir, I have 2 questions. My first question is, when we look at the steel market, there has been a bunch of price hikes between July, August -- August, September and October -- sorry, not July. Now these will flow through at different points of time depending on 6 monthly contracts, 3 monthly contracts and spot. On the other hand, coking coal has been volatile, but iron ore prices in India have rise -- have been rising. So at this point of time, sir, how should we look at the steel spread, basically steel price -- steel realizations minus iron ore minus coking coal cost. Would they improve at -- in the third quarter versus the second quarter? Or would they deteriorate, given the lead and lag of the various cost and price impact?

So from a price perspective and a cost perspective. So on a price perspective, I think, we mentioned that internationally, we were at a discount. The domestic prices were at a discount by end of September to the extent of 5%, 6%, which has been bridged by a price increase in the month of October. Second is that the contract prices -- contractual prices were both quarterly, half yearly automotive, appliances are all due for revision from 1st October. And that is in the process of getting closed. Some have already been closed, some are in the process of getting closed. The price increases there also would be somewhere in the range of 10% to 12% on their existing price levels and product to product it may vary a little. So that would also be a positive coming in. As far as coal is concerned, I think, we mentioned that the cost of coal in Q2, coking coal as a blend would remain similar in this quarter by virtue of the volatility which coal has exhibited. There is also a lag between the supply and the stock which is coming in. So we expect a similar level. Iron ore, I think, Mr. Rao has already mentioned to you that there is a constraint with respect to supplies that iron ore shortage prices have gone up in the last 2 months. So there is some impact of the iron ore cost flowing into the cost profile. So I think the effort would be to maintain the margin, if not improve it.

Understood. And sir, second question is that it mentions 27% of iron ore requirement is now met by captive mines. So sir, can we quantify it, a? And can we, at this point of time, understand how much will this increase to over the next 6 months?

No, if Odisha evacuation is smoother, then we will be able to meet 100% of Dolvi and 100% of the Salem. That is what really difficult to guess today. But as a number, we can tell you that these mines are capable of producing 1 lakh tonnes per day. Whereas right now, it is producing between 40,000 to 50,000 tonnes a day.

Next question is from the line of Ritesh Shah from Investec.

Sir, my first question is on the recent bond issuances that we had. Sir, how should one look at that from a capital structure point of view? And are there any benefits on refinancing? Sir, if you could provide some color over here, that would be useful.

Yes. I think markets were opportune to raise this money. So we have tapped the markets and raised this amount of $500 million. So the intention is to use this money for various purposes, including CapEx, reducing the debt and also to meet working capital requirements. So therefore, our effort is to build adequate liquidity in the overall balance sheet and also maintain our ratios. So the way we are guiding, around 3.75 is the direction we would like to move instead of saying which fund where to use.

Sir, are we refinancing any debt on back of this? And are we having interest cost savings on back of this?

Interest? I didn't understand the question. What do you mean that -- what do you mean by that?

Sir, if we are refinancing the debt over here, is there any interest cost saving which is likely to accrue? Or is it more like from a liquidity point of view, we are just enhancing our war chest?

No, whatever rupee debt, let's say, we have raised at around 8.5%, part of that amount we have used for prepayment of the existing rupee loans. There, we have saved some cost. And the foreign currency which we have raised, if we have to invest that money temporarily, I don't think there will be an increase in the overall cost. It will be -- it will remain more or less same.

Okay. That's useful. Sir, my second question is the net debt number, which we give in the presentation, does it include the Duferco [Technical Difficulty] limit. If yes, how much was the limit drawn on March-end basis? And how much is it on September-end basis?

This includes the advance drawn under [ APSS. ] So see, every month, we have to export and repay around $13 million, so that we have been doing by export of steel products to Duferco. So it gets reduced. I don't remember exactly how much was there on 1st April. How much was there on 30th September, but this is gradually coming down.

Okay. Sir, last question. Any update on Moitra coal block?

Moitra coal block, not much progress because of the COVID-19 issues here, either in terms of approval or working on the ground. So these 6 months, we could not do much on Moitra coal. And again, now we are reviewing to restart the activity in Moitra Coal Mine.

Next question is from the line of Vishal Chandak from Emkay Global Financial Services.

Congratulations on a very good set of numbers. Sir, my first question was with respect to the iron ore that we are bringing in from our Odisha mines. How do you see the cost differential between procuring from merchant miners in Odisha versus our own mines? What would be the difference largely on the landed cost basis at Dolvi?

So it won't be cheaper, Vishal. It is always expensive because our average premium we have paid for all the 4 mines together is 105%. So if market is 100%, I have to pay 105%. So therefore, I don't think if you compare landed cost-wise it will be cheaper, but it will give us the flexibility to operate the plants, either to source it high-grade or low-grade as the plant requires. I think in this quarter, as an integrated plant, we were able to operate the unit saving at 86%. The strength is we have got these 4 mines. Otherwise, it was not possible. So therefore, it is the strength from that point of view. But the cost of production side, gradually over a period of time, it will give the savings. In the logistics cost, the way we bring in, the way we handle, the way we mine. But in the short term, I don't think it is less expensive compared to the market.

Sir, in fact my next question was only with respect to how do we plan to reduce the cost over the long period of time? I know we have got slurry pipeline and pelletization lined up. But how do we -- what are the time lines that we are looking at implementing these projects?

No, this 5% or 7% plus mining cost, which we are paying extra, our focus is how do we equalize at least to the market. In that regard, if we look at JSW Infrastructure, they have made their 18 million tonne-terminal -- iron ore terminal at Paradip Port operational. So earlier, we used to get the iron ore both from Dhamra and also Paradip Port. Because JSW Infra has set up all the facilities to handle large capacity, we did not go to Dhamra, and we can handle everything from Paradip. So that is how we'll be able to reduce, to some extent, the cost of transportation, port charges in bringing the iron ore, that is one. Number two is transporting iron ore from the mine to the railway siding. That is another area where we are focusing how to reduce that cost. We are working with transporters. We are working with others to reduce that cost. The third area is mining cost itself. We have given short-term MDO contracts right now. We're also getting experience in this area. So we'll work on reducing the mining costs further down. So this is short-term measures. If I look at long term, we wanted to set up a slurry pipeline to bring iron ore from the mine to the port. That will take time. But once we do that, I think, that is where the game lies. The logistics cost will come down drastically.

Sir, at the port, do we also plan to set up a pelletization plant to further reduce the coastal movement instead of just looking at shipping iron ore fines?

No. Pellet plant already there at Dolvi and also at Salem, our sinter plant. Therefore, we are not planning any pelletization plant at the port right now.

Next question is from the line of Raashi Chopra from Citigroup.

Just going back to the iron ore mines. So given the infrastructure -- the logistic constraints, obviously, you can't meet the 80% requirement. So in -- against that backdrop, is there any sort of penalty? One. Second is that if the old miners don't get the extension beyond October, do you think they would be -- they would want to expedite the sales, and therefore that kind of puts downward pressure on the iron ore prices?

As far as the question one is concerned, this 80% of the average production done by the earlier miner in the last 2 years. So if we take that amount, that time we have 12 months period, from the day we signed the mine development agreement. So within 12 months, we have to achieve that. So if I do an assessment today, we are reasonably confident we'll be able to meet that commitment. The second question which you have asked is completely market-determined pricing. We don't know whether prices will come down or not. But logically, if I evaluate the total iron ore that is produced within Odisha by the merchant mining companies and where they were selling, particularly large buyers of iron ore within -- from Odisha. Now some of them -- or majority of the large steel companies, they've got the mines in the auction. Therefore, they are not there in the market. So if supply is there in the market, then is there any offtake to a big extent, to a large extent, that is to be seen what is going to happen. More and more players may set up pelletization plants or DRA plants. It is very difficult to hazard a guess what is going to happen. But based on supply and demand dynamics, we feel that the demand, which was there earlier, now they have got the mines. So that demand may not be there in future.

Got it. And just on -- one more question on -- continuing on steel pricing. So the -- what percentage of your volume would get covered in these quarterly and the half yearly contracts? One. And second is, are there any chances -- is there room to raise prices for the monthly contract going into November for flats and long separately?

Yes. So our quarterly contracts, half-yearly contracts put together would be about 15%, 16%. And we have some other project fixed contractual till the project is completed, which would be another 5%. So maybe 20% on an overall would be this fixed price kind of contracts. Secondly, with respect to the question on November prices, I think it's difficult to say at this point of time. We do see that internationally, the prices are positively poised. In China, also the prices are showing a slight uptick. But we would review the situation on ground and see how it is getting absorbed and then take a call.

Just one last question. What is the acceptances figure?

Revenue acceptances...

1098.

1,098 million as on 30th September, and the capital side is 441.

Next question is from the line of Chirag from DSP Mutual Fund.

Sir, I had a question on essentially the CapEx and the debt levels that will be there going forward. Given that you have reasonable visibility over the next 2, at least 1 quarter and then hopefully, it will be good for the next quarter also. Where will the debt level move on an overall basis? I know you talked about debt to EBITDA [indiscernible] bring it down to 3.75. But the absolute level of debt, where will it be? That's what we want to know, sir.

No. As far as the capital expenditure, what we have planned in this year, I don't think debt level will go up considering the cash generation in the company. But what is uncertain today is about acquisitions, BPSL and Asian Colour. If these acquisitions happen in this year, there could be an increase in the overall absolute number. Even after that, whether we can manage to bring down to the level where we are comfortable with, that is, 3.75, that is what the effort from the company.

Sure, sir, that's useful. And any indication on how much debt would be there from JSW for BPSL in terms of the size?

That we'll share the details once the transaction is to be closed. But as you know, there is a debt and equity structure. Debt is concerned, it will be raised in the target company without recourse to main company. Then the equity is concerned, that will be contributed in a manner that no consolidation will happen in JSW Steel.

Next question is from Bhavin Chheda from Enam Holdings.

Sir, good set of numbers. Sir, can you give me -- I know volume breakup of the captive mines, which were at Karnataka and which were at Odisha during the quarter, I think you gave the overall 27% number. But sir, if you can break it up into volumes at Karnataka and Odisha?

Yes. I don't have the number separately for Odisha and Karnataka, and this will be given by our Investor Relations department.

Okay. And Karnataka, all the mines are operational or any mine is pending?

8 mines are operational, expect 1 mine, that also will start in this quarter.

Okay. And the second one, sir, what would be the downstream capacity now after this acquisition?

You mean, Asian Colour?

Yes. Asian -- current capacity and -- Asian Colour is, I think, 0.3 million, right?

No. Asian Colour is 1 million, both the locations together.

Okay. And our existing would be how much after all the expansions which have already been completed?

Vasind, Tarapur, Kalmeshwar, these 3 units earlier was 1.7 million tonne capacity. That is going up to 3.6 million tonnes after completing the expansions in these 3 locations.

Okay. And what would be the time line of that, 1.7 to 3.6?

It will get completed by end of this financial year, excepting CAL line, which is 0.5 million tonnes.

So except 0.5, everything would be complete?

[Technical Difficulty]

And Asian Colour, 1 million will be fully operational or it would take time? So we would be almost ranging 4.5 after Asian Colour, right?

Yes.

Okay. So Asian Colour, 1 million, when you acquire, it will take time? Or do you think it's operational capacity?

No. It is an operating company today. Both the units at Haryana and also in Maharashtra, both are operating right now.

Okay. Sir, just last one, the INR 228 crores loss you mentioned in U.S., is it at Acero or -- sorry, INR 228 crores gain. So is it in the U.S. plate and pipe mill EBITDA? Or is it in Acero EBITDA?

No. I mentioned all the numbers together. The overseas losses were INR 213 crores, 2-1-3, okay? Then after that, there are certain provisions which have been made in Italy, and there are certain gains in the U.S. So net-net, INR 169 crore is the net gain. So INR 228 crores -- INR 213 crores minus this INR 161 crores, net-net INR 52 crore is the loss from overseas.

Okay. And sir, plate mill, 17 million EBITDA is a sustainable number? Or again, there is a one-off in that number and needs to be adjusted?

No, this one-off item is there. That's why it is positive, otherwise it was negative.

Next question is from the line of [ Prashant Kumar ] from [indiscernible] Capital.

Sir, my -- 2 questions, sir. The first one is on the downstream project and the cost saving projects that are underway. Assuming all these are completed and fully ramped up in FY '22. For FY '23, assuming a normal cycle, no COVID, what is the kind of EBITDA -- positive EBITDA potential that these projects have, that you could have -- would have built into your numbers? If you could give a broad number is also fine, incremental EBITDA?

No. Number one, the incremental 5 million tonne capacity, which is coming up at Dolvi, because of the size of the blast furnace and the process which is involved, the cost of production compared to the existing 5 million tonne, it will be cheaper, at least by 15%. Then the second one is the cost savings, which can happen at Vijayanagar, one is coke oven plant, the second is pelletization plant. Pellet plant will replace the buying of lumps there. So that differential goes on changing, but there will be definitely a savings on account of pellet plant. Number one, the differential between lumps and the cost of conversion of fines into pellets. If we compare both, they will be saving. Number two, overall productivity gains on account of use of pellets, in the process. This is the second, those gains are there. Then the coke plant, which is also starting in the next financial year, not in this year at Vijayanagar. Because of that, the bought out coke is not required. Bought out coke means the coke which they are getting right now from Dolvi. When Dolvi completes 5 million tonnes, then there is no surplus coke that would be available from Dolvi. But the transportation, which they are incurring for sending coke from Dolvi to Vijayanagar, that is a saving which can happen at Vijayanagar when they have their own captive coke plant, which will get commissioned in the next year.

Sure, sir. Broadly, if you -- any broad quantifiable number based on your internal assessment?

No, that number is very difficult. There are so many factors which goes on changing here. There is a potential, but it is very difficult to put one number there and say, this is the number we will achieve.

Sure, sir. My second question is on -- sir, our iron ore mines that we acquired in Odisha have a mine life of about 40 years based on the numbers out in press, et cetera. Sir, if in 40 years, I think, we don't know where the steel market will be. What is the scrap availability? Will it be a totally scrap driven world, et cetera. So to that extent, is there any idea to front load a lot of that benefit now as in -- in terms of either trying to export wherever there is an opportunity in pockets of time? Or either setting up some sort of a value addition, large value addition project there because we have a large capacity, 28 million tonnes that can produce and maybe you can even expand. Is there any idea, what is the thought process on trying to front load some of that benefits of iron ore into the earlier years? Is there any -- if you could throw some light?

No, the first immediate priority for JSW is to ramp up the capacity of the iron ore mining in Odisha and see that we become self-sufficient in terms of Dolvi at 10 million tonne capacity and the Salem at 1 million tonne, and any shortfall at Vijayanagar, we will be able to give from Odisha. That is how we would like to achieve in the stage 1. In the stage 2, the way you put it rightly, is that to optimize, to get the benefit of front loading if anything can be done. That is the second phase we will evaluate. So we would like to work in the short-term to medium-term to first to meet our requirements through captive mining.

[Operator Instructions] Next participant is Amit Murarka from Motilal Oswal.

Just 2 questions from my end. Firstly, on the pricing side, generally, what we are seeing is that the regional prices have actually softened since early September. I mean both the regional, the Chinese export prices and the domestic prices. So in that context, actually, we are -- the Indian prices, HRC prices seem to be at a premium as of now. So can this premium sustain? I understand the demand is strong, but can we sustain in this environment?

Yes. So if you look at the Chinese prices in the last few weeks after the Chinese holidays, the prices have improved in the spot market as well as in the future. Directionally, they have moved up. The other thing which we need to consider is that international iron ore prices, which were in February, March below $90 CFR China, is now in the range of $120 CFR China. China being a very large importer, the ability for them to -- the cost will basically prevent any drop in prices. So therefore, I think, that is providing a bottom to the price. So today, if I look at it, I do not see a situation where international prices will correct. Yes, it would be range bound because supply disruptions in the world which has been in the range of about -- blast furnaces, about 132 million tonnes of blast furnaces were shut down due to the pandemic. Out of that, 1/3 has come back, but still there is a gap. If I were to give you just a material balance, it is expected that the rest of the world outside China, the production in this year will come down by about 100 million tonnes. China has imported incrementally 30 million tonne more expected to import, if I take up to December, 30 million tonnes more than last year. And the exports are likely to be less by 10 million, 12 million. So there is a supply gap of 140-odd million tonnes. And if we look at the WSA forecast of the rest of the world demand, that drop is about 114 million tonnes. So therefore, there is a supply-demand gap, which is positively poised to maintain the prices on a positive trajectory.

Okay. Sure. And also on the auto contracts, like where are we in the process of finalization of those contracts?

Some have already being finalized. Some are in the process of getting closed.

Okay. And these will be again 6 monthly, basically, for the second half?

Yes. Most of the auto contracts are 6 monthly, yes.

Next question is from the line of Indrajit Agarwal from CLSA.

A couple of questions from my side. One, can I get a sense of the steel inventory in India correctly, both at the steel mill level and at trader level, how is it compared to, say, June end?

So the inventory, if I look at the JPC's latest numbers, the inventory in India has come down. I think as on September end, the drop is about 1.84 million tonnes as is reflected. It's also visible if you look at the import versus export and the supply deficit because of a lower production during the first half. So April to September, this is the kind of drop which JPC is reporting. So inventory has gone down. But if I look at it from a producer perspective and the market information, which I see, production deficit in the country by about 21% in the first half, high level of export to the extent of about 11 million tonnes in the first half from India overall and a drop in imports by almost 50% has resulted in a supply chain inventory deficit. And the demand, in general, has gone up. So I think the inventory at the mill and the supply, the channels basically are at a very low level, below the comfort level.

That's helpful. Sir, second, in the opening remarks, you mentioned that India consumption was about -- down by about 9% Y-o-Y, whereas our domestic use are up by more than 20%. So is that more like the product mix, the mix that we have been cross selling? Or if it's more about we are keeping -- maintaining a lot of market share is it?

So in this particular domestic, we -- actually, if you look at the longs and flats, even in India, I think the flat drop was lower than the longs drop. So out of 9.9% Y-o-Y drop, flats dropped by 6.5% and longs dropped by almost 13%. So what we have done during this period, and longs dropped primarily because of construction and infrastructure activities which were constrained because of social distancing and migrant labors moving out got impacted more than flats. So we had reoriented our product mix more to flats, and that has been able to drive the differential growth between the domestic -- our domestic sales in India.

One last housekeeping question. Sir, the INR 2,000 crore upfront payment for the mines in Orissa. Has that been entirely paid? In the sense that, is it reflecting entirely in our net debt number already?

Yes, it has been fully paid, out of that INR 1,290 crores is towards premium, balance INR 800 crores is towards stamp duties and other charges. So that INR 800 crores has been capitalized, this INR 1,290 crores is shown as an advance against the premium payable to the government. So the INR 1,290 crores as and when iron ore is produced and dispatched, that will get adjusted.

Next question is from the line of Gaurav Rateria from Morgan Stanley.

Okay. Sir, 2 questions. Firstly, what is the amount of iron ore you need to produce from Odisha mines to comply with 80% execution?

If I recall correctly, it is, I think, around 16 million to 17 million tonnes what we need to produce in a year, in a 12 months period.

So this will be pro rata for 8 months?

It is not pro rata. As I mentioned to you, it is 12 months. It is not month-on-month.

Okay. And sir, secondly, the other miners who were supposed to start the mine -- mining operations in Odisha, if they don't start for the next 3, 4 months, do you think the situation will become where the -- there will be shortage of high-grade iron ore in India, and there could be some imports happening? JSW may still be better placed, but from an overall country perspective?

So overall country perspective, 2 things: one is whether we can moderate export of iron ore from India because 93% of the exports are going to China. And these exports are more than doubled. So therefore, whether government is realizing the need to moderate export of raw materials from India, that we need to watch. Second is that the balance 19 mines minus 5, which are already started, whether they'll start production, thereby more can come in from there. That is the second. The third is whatever mines that have started, once the evacuation gets eased, then production can improve, and they can as well sell part of the quantities even in the market. Fourth point is Chhattisgarh NMDC mines, today, there are certain restrictions that those iron ore should be first made available to the companies -- steel companies within Chhattisgarh [indiscernible] units. Only surplus can be given outside Chhattisgarh. So there some relaxation can come once production improves in the NMDC. NMDC production was affected because of the monsoon and rains. So there are 4, 5 factors, which is influencing demand and supply in Orissa and Chhattisgarh. Hopefully, things will normalize going forward.

Okay. Sir, last question. With restart of Donimalai mines at some point in time in Karnataka, do you think there could be increase in cost structure, which could be passed on by the merchant miner to the company or the demand supply situation is such that it will be very difficult because Karnataka is an excess supply market?

No, Donimalai mine, what we understood is that there can be a possibility of restarting the mine. There is some understanding between the NMDC management and the Karnataka government, but it is yet to happen on the ground. So I think there will be some progress we expect to happen in Donimalai. With that, things will normalize.

Thank you very much. Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to the management for closing remarks.

Thank you very much.