I just wanted to start off by asking you because you just released a note that also talks about the EV battery move. Where are Indian players compared to international players, especially Chinese players? Do you think we have the right capabilities and technology?
Satyadeep Jain: Yes, so there is an oversupply in China. Did we actually mention that there is a food company. It’s generally like the dotcom boom where companies that haven’t set up batteries, that don’t have battery experience, food companies are trying to get into the space.
So, it has happened a lot. But now, even in China, supply growth is modest, given overcapacity. They were eyeing 5,000-6,000 GWh of capacity addition over the next few years.
Much of that has been reduced due to lower margins. So, barring a few players, the biggest ones are CATL and others. A lot of players are bleeding into the value chain, be it upstream, downstream, midstream. When we look at India in the context of India and we also have the US, the US and Europe, despite the overcapacity we see mostly in China and to some extent in Korea, there are ambitions to shore up production capacity. Because ultimately, at the end of the day, you don’t want one country to be responsible for all the output growth, employment, current account surplus.
How and who will all this affect in terms of India, if you can name some of the companies present in the system, which are either doing well or will be affected the most? Any color there?
Satyadeep Jain: In the report, we have mentioned which companies have announced expansion plans. So, within that 100-gigawatt hour of capacity expansion that you mentioned, there are several companies that have indicated targets to install battery cell manufacturing capacity. Looking at the expansion, it could be the likes of Ola Electric.
With a different technology is Reliance. Then you go to Amara Raja, JSW Energy and then there are a number of companies that have announced, including Tata, a Tata entity, Adani. Hence, different players are looking to enter this space.
There is one company, a capacity of about 1.4-GWh which is commissioned by Ola Electric. But as we look at the plans, they are the plans and we have to continue to monitor the progress on these targets that they have released, are there any delays or not?
Even in the midstream space, there will be opportunities to create LFPs. I don’t think we have opportunities in the upstream space. But in midstream, there may be opportunities for players making LFP cathodes. At the anode end, electrolytes, there may be openings on the separator. These are all midstream that go into battery cell manufacturing. And then you have the battery foil, which is aluminum and copper.
But what about the price situation? Do you expect some kind of pricing pressure globally and also in India? You talked about the China factor coming into play, but just wanted to understand the cost and financials.
Satyadeep Jain: When you talk about finances, because India currently has only one battery manufacturing capacity of 1.4-GWh. So, there is no real battery. But if we don’t have trade protection, a company establishing capabilities cannot generate commensurate returns.
So, you need some incentives besides PLI. If there are no incentives, players won’t make money, so there has to be some token support from the government before companies even look to install capacity.
As I mentioned, there is global overcapacity that you see. The players who are already involved in this space, barring a few big players like CATL, which is still making a profit, and some other players, a lot of players in the value chain are losing out.
So, given a typical capital cycle at some point in the game, there will be some rationalization of capacity, more assemblage, more practicality, so there will be a point where capacity utilization will pick up and you’ll see a normalization of spreads for both midstream and downstream. players
But when that happens is obviously anyone’s guess right now. But especially in the Indian context, as I mentioned, the situation is somewhat like the solar value chain where the global players if you look at the Chinese players and all, they are struggling on the current solar module and cell prices.
But given the security we have and the opportunity to export to the US, Indian players are making decent margins right now. So for batteries, the same thing needs to happen for players to invest and get a return on their investment.
But I wanted to focus and talk a little bit about metals because we understand that Canada has now imposed tariffs on imports of steel, aluminum, led by the US. How do you expect it to affect global supply-demand dynamics as well? And any Indian companies we should watch out for?
Satyadeep Jain: Look, more than that, yes, the US is already, even Canada this morning has imposed a media report on EV, so there are many countries, US, Europe, Canada looking in that direction.
The final question is what is actually going to happen in the Indian context. Because of all the headwinds you’ve seen in terms of mining regulation and competitive pressures on prices. In our recent note on mining regulation, we have pointed out that there is a silver bullet for the government that despite all these new divisions, they are separate under the Seventh Schedule of the Constitution of India, the State, the Center, the States, the Center, and a concurrent list. Yes, these all have different powers.
Within the state, you have 61 powers, two of which relate to mining, which is at the center of the controversy, 49 and 50, which relate to mining rights and the right of the state to levy taxes on mining land.
So, based on our conversations with the industry and we point out in view of the Supreme Court judgment, there is probably an unfettered power for states to levy taxes on mining land.
But all that will be discussed in the following days or months especially on the retrospective part. And the center has a silver bullet and there is a historical example in 1991 where they increased the royalty rate to compensate for the lower taxes for the state.
So, if the states start raising the tax, the state, the center can reduce the royalty imposed at any time, so it may not be as big a headwind as it is feared, but still you are looking at a situation where you are getting more dumping. are you , prices are coming down further which is hampering margins or perhaps investment plans for companies.
You also actively track the cement space, so talk to me about the recent price hike. We understand that it is somewhere around Rs. 10 to Rs. 15, but the big question is whether it will be sustainable as the previous hike had to be rolled back?
Satyadeep Jain: Typically we see seasonal weakness for this period and your typical price strength increases towards the end of the year. Sometimes companies announce increases and these are later withdrawn in view of price competition. Sometimes you have a discount. So, companies raise the billing price, but then offer a discount.
Your overall feeling does not increase. So, given the overall competitive situation that we have, perhaps we will have to wait and see if these prices are absorbed or not. Competitive intensity has increased. There are some abilities that are acquired. They need to increase the utilization of those assets, which means that unless you increase the level of utilization in your current asset base, you will push more product into the market. So, in the near term, not sure if these prices will sustain or not, something we will have to wait for.
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