Impact

Steel industry, like most capitalintensive industries, is cyclical in nature.

• Global steel prices have fluctuated significantly in recent years because of factors such as the availability and cost of raw materials, fluctuations in both international and domestic steel demand, production capacity addition, imports/exports, transportation costs, trade measures, and various social and political factors in the economies where steel producers sell their products.
• Steel prices are also sensitive to the trends of industries such as automotive, construction, infrastructure, packaging, consumer durables, appliance, machinery, equipment, and transportation industries, which are among the biggest consumers of steel products.

Response strategies

• 28.2 MTPA steelmaking capacity in India - a market where steel demand grew by 13.4% in FY 2023-24;
• Focus on value added products for protection against price volatilities. Value added special products contributed to 61% of the total sales in FY 2023-24;
• Steel prices and raw material prices of iron ore and coking coal move in tandem although with a lag;
• Drive cost reduction projects to improve profitability.

Strategic risks

Raw material availability and cost of iron ore and coking coal

Impact

Our primary raw materials - iron ore and coking coal, and other commodities like thermal coal, natural gas contribute to a significant portion of our operating cost. Iron ore, coking coal and other commodities' prices and availability depends on:

• Global price and currency fluctuations and parity of landed cost considering price, freight, tariff and exchange rates;
• Government policies on mining, allocation and tariff;
• Domestic demand-supply gap, interruptions in production by suppliers, demand for raw materials and suppliers’ allocation to other purchasers leading to the risk of production disruptions due to non-availability of the above materials;
• Uncertainty in availability given that no major additional capacities are being added globally;
• Few of the commodities have high dependence on certain geographies.

Response strategies

Iron ore

• Acquired 24 iron ore mines through government auction in India; having total reserves of 1.6 billion tonnes;
• Iron ore requirements are met by optimum blend of captive mines and balance sourcing from vendors in Odisha and Karnataka; Captive mines supplied 33% of the Indian operations, iron ore consumption;
• Regional sourcing of iron ore to optimise logistics cost;
• Augment the iron ore captive mines by participating in mine auctions conducted by the government;
• Hedging of iron ore prices to protect from price volatility risks;
• Procurement of raw materials linked to benchmarked indices and discount to benchmark.

Coking coal

• Prices are expected to remain volatile in view of global geopolitical events;
• Diversifying sources across various geographies to ensure availability of coking coal. Sourcing being done from countries like Canada, USA, Australia, Indonesia and Mozambique;
• Blending of different types of coal to minimise the impact of rising prices;
• Trial of new grades of coal for better value in use to reduce the cost of sourcing;
• Exploring global opportunities for acquisition of suitable stake/ strategic alliance in coking coal mines;
• Operationalising three captive domestic coking coal mines won in recent auctions;
• Procurement of raw materials linked to benchmarked indices and discount to benchmark;
• Acquisition of Minas de Revuboe Limitada (MDR). MDR owns a high quality and large-scale pre-development stage premium hard coking coal mine project having reserves in excess of 800 million tonnes.

Impact

Increasing production capacity from 28.2 to 50 MTPA results in logistics risks such as:

• Scarcity or non-availability of rakes for inward and outward transportation;
• Congestion of vehicles / rakes at the entry and exit points leading to disruption in plant operations;
• Risk of accidents with the increase in road traffic;
• Port logistics and constraints.

Response strategies

Infrastructure improvement has been undertaken to ensure seamless flow of inbound material and outbound goods. Some of these are:

• Long-term contracts with port service providers for raw material handling;
• Enhancing operational efficiency of pipe conveyor at Vijayanagar and increasing capacity to 20 MTPA to reduce dependence on road transport for iron ore movement from Karnataka mines to plant;
• Implementation of 30 MTPA slurry pipe project to cater to iron ore movement from mines to ports for onward movement to plant locations;
• Investment in own rakes through General Purpose Wagon Investment Scheme and SFTO (Special Freight Train Operator) for customised rakes;
• Long-term shipping contracts with vessel owners;
• Additional rail/road entry and exit points for enhanced volumes planned;
• Additional storage yards for iron ore fines and coking coal;
• Implementation of digital logistics solutions to track and monitor.

Impact

• Risk of acquisition at value greater than fair value may impact Return on Capital Employed (ROCE); and thus, adversely impact debt and interest servicing.
• Challenges in turnaround and scale up or delay may drag profitability.
• Old litigation may impact JSW Steel Group earnings and erode stakeholder value.

Response strategies

Pre-merger

• Conduct site visit of targeted acquisition;
• Carry out due diligence that mainly includes finance, tax and legal aspects - this helps identify risks and plan strategies for mitigation;
• Design finance model taking input from strategy, business development to decide on the optimum mix for capital structure;
• The Company employs a conservative approach in bidding to ensure that the net debt to EBITDA and net debt to equity are maintained below the threshold levels.

Post-merger

• Implement various systems like Legal Compliance software, SAP and ARIBA in the new company to strengthen governance process;
• Revise delegation of power in new entity;
• Grades and people policies to be harmonised;
• Leverage cost leadership strength in merged entity;
• Implement operational and financial best practices existing at JSW Steel Group.

Impact

Risks associated with exports arise due to the following reasons:

• Global uncertainty;
• Trade protective measures taken by countries in Europe, America, Asia, Mexico and Brazil;
• Slowdown in China and likely increase in exports;
• Geopolitical situation;
• New capacities in India;
• CBAM.

Response strategies

• There is robust growth in domestic steel demand at 13.4% (FY 2023-24) and the domestic market should be able to consume the incremental quantity next year.
• This will be further aided by import substitution, indirect exports and thrust on MSME and regional focus in the South and the West.
• The Company has capabilities and product offering that give flexibility to capitalise on the export markets as and when required.

Impact

Foreign exchange fluctuations and commodity price fluctuations impact profitability

Response strategies

• A robust hedging policy in place to mitigate the risk of currency and commodity fluctuations, and reviewed by the Board.
• Hedging strategy with a judicious mix of forward contracts and options.
• Adequate hedging of long-term capital liabilities.

Impact

Interest rate increases in the key global economies could slow down foreign currency inflows into the country. This could affect the value of domestic currency and interest rates and thus, adversely impact our ability to secure financing on favourable terms.

Response strategies

• Optimum mix of fixed / floating interest rate and INR/ foreign currency loan for borrowings.
• Improved financial parameters leading to improvement in credit ratings.
• New ECBs raised at lower spreads over benchmarks.
• The Company negotiated and raised new Rupee loans at rates below the MCLR of some banks by linking to alternate benchmarks i.e. T bill and repo.

Impact

Risk of disruption in production due to non-availability of water/inadequate power supply for enhanced capacity.

Response strategies

Water

• Vijayanagar - Increase in production will require additional sanction of water, for which government approval has been received and budget has been allocated;
• Dolvi – Proposed reservoir with additional capacity near the plant. The land has been identified. This will help recycle and reuse water.

Electricity

• Power being sourced from captive power plant and the long-term power purchase agreements with JSW Energy Limited and its subsidiaries. Total capacity of the Group's captive power plants stands at 2,000 MW;
• Additional transmission line is planned;
• Utilising waste heat and gases from blast furnace and coke oven for power generation and heating requirements, thereby reducing the external requirement of power sources.

Impact

The steel sector is subject to extensive health and safety laws, regulations and standards. Any safety lapses would result in damage or destruction of property, assets and human capital.

Response strategies

Ensuring compliance with local and international laws, regulations and standards with a primary focus on protecting employees and communities from harm and operations from business interruptions:

• Certified for ISO 45001 - Safety management systems, and in compliance with international best practices in safety management;
• Matured safety governance structure is established including Group Safety Council, Safety Steering Committee, Apex Safety Committee and other sub committees for review of safety aspect, fatal accidents/near miss accidents, if any;
• Periodic safety inspections, internal and external safety audits ensure that our systems are properly implemented and compiled;
• Regular safety training is conducted based on the training needs identified across different skill levels of both staff and workmen;
• Mandatory usage of PPEs such as safety shoes, safety helmets, appropriate hand gloves, etc. as per the PPE matrix is strictly implemented at all our plants;
• Safety made a mandatory key result area for employees;
• Medical facilities, mediclaim policy cover for employees and their families, and group insurance policy for employees;
• Robust security arrangements like security check post, entry pass/identity cards, access control system, CCTVs at critical locations.

Impact

Evolving regulatory framework may have material impact on operations. Deviation in compliance and non-adherence may impact reputation.

Response strategies

• Robust legal compliance management systems ensure awareness and compliance.
• Technology is being utilised to track compliance, timelines with suitable escalations, action plans and reviews.
• Compliance review by senior management and Board of Directors on quarterly basis and initiation of remedial action.

Impact

Cyber security risk could damage reputation and lead to financial loss. Such threats arise from:

• Theft of corporate information;
• Theft of financial information (e.g., financial results and bank details);
• Ransomware – cyber extortion;
• Disruption to business (e.g., inability to carry out SAP transactions, online payments);
• Loss of business or contract.

Response strategies

• The information technology management system confirms to ISO 27001:2013.
• Controlling system vulnerability through:
  - Vulnerability assessment and penetration testing for all public facing assets;
  - Firewall hardening rule sets implemented;
  - Firewall remediation tool deployed and improvements done in identified areas.
• Breach assessment done with subject expert partners through:
  - Strengthening the cyber security posture and carried out self-assessment and continuous monitoring (ongoing);
  - Third-party view and peer comparison undertaken.
• Cyber security awareness programme conducted across all the locations in view of growing threats of cyberattacks due to increased online trades and transactions.
• Multifactor authentication for critical IT services (Remote VPN Access).
• Network Visibility and Access Control (NAC) Solution.
• Monitor threats and respond, investigate and remediate cyber security related incidents and data breaches.
• Subscribed to cyber insurance policy.
• Prevention mechanism for Distributed Denial of Services (DDoS).
• Endpoint Detection and Response (EDR) solution deployed.

Impact

The Carbon Border Adjustment Mechanism (CBAM) is essentially the European Union’s (EU) new carbon tariff, designed to be in alignment with the EU’s domestic Emission Trading System (ETS). It puts a price on the carbon emitted during the production of certain carbon intensive goods that are entering the EU.

While the financial implications of carbon tariffs will be evident in the definitive phase beginning January 2026, the penalties of non-reporting or incorrect reporting cannot be ruled out in the transitional phase which has set in from October 1, 2023 – December 2025.

Similar carbon tariff regimes are expected to be adopted by various other nations, with the UK declaring its CBAM regime to be introduced from January 2027.

Response strategies

• Internal systems have been designed and established to ensure the CBAM compliance of timely reporting are met with. This includes identification of products being exported to EU from each plant, mapping of the production processes, and calculation as prescribed by the regulation and guidance provided for CBAM.
• The quarterly submissions to EU importers as required during the transition phase have already been initiated.
• Looking at the evolving regimes of Carbon Tariffs becoming a requirement in international trade, JSW Steel proposes to set up a green steel/low emission steel factory at one of the existing locations to cater to such requirements.

Impact

• Steelmaking inherently involves emission of CO₂, dust and other co-products - gases/waste (slag) along with water consumption that pose a risk to environment and sustainable growth.
• There is a need to decarbonise steelmaking for environmental sustenance for which India has committed to achieve net zero emissions by year 2070. In India, as elsewhere, climate action is intensifying but any drastic change in carbon emission regulations may adversely impact our business and operations.
• Compliance with new and more stringent environmental obligations related to greenhouse gas (GHG) emissions may require additional capital expenditure or modifications in operating practices and additional reporting obligations. Capacity expansion projects require adherence to legal requirements like environmental assessments, environmental impact studies and/or plans of development before commencing work.
• Water availability along with climate change is also posing a risk to our operations due to its imminent importance in steelmaking. Resultant weather patterns relating to climate change may pose a challenge for water availability for operations.
• Expiration or delay in approvals could prevent us from carrying out our operationsin full.

Response strategies

• We are complying with all the applicable norms through use of Best Available Technologies (BATs).
• We select the right equipment, technology, processes, inputs and we monitor and report our sustainability parameters.
• We have started using renewable power in steelmaking, and are aiming to increase the use of renewables in steelmaking every year.
• We have also installed advanced technologies like MEROS in sinter plants to further reduce dust emissions which are capex intensive.
• Slag-to-sand projects, waste plastic usage in steelmaking, have been innovated and implemented to constantly ensure circularity in operations, enabling waste management practices.
• We are operating innovative processes such as carbon capture and utilisation to capture carbon and divert to different applications.
• For our mining operations, we have undertaken comprehensive Reclamation and Rehabilitation (R&R) programmes, in line with government mandates, and ensuring enhancement and preservation of biodiversity.
• Utilisation of waste heat and waste process gases is being practised to ensure energy efficiency.
• We believe in transparent disclosure of information through various platforms such as CDP, S&P Global Corporate Sustainability Assessment, along with public disclosures in the annual integrated report.
• Product sustainability is a focus area and all 14 finished products from three of our integrated steel plants and five finished products from our three downstream plants have obtained Environment Product Declarations (EPDs) and three products are GreenPro certified.
• We have implemented water efficient technologies and ensure maintenance of Zero Liquid Discharge at our operations.
• We are aligning with the recommendations of Task Force on Climate Related Financial Disclosures (TCFD), allowing us to focus on climate-related risks and opportunities.