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Business News/ Companies / Company Results/  Tata Steel’s European ops will be much better by Q3: T.V. Narendran

Tata Steel’s European ops will be much better by Q3: T.V. Narendran

Narendran expects China’s 5-6% growth to be a major boon for the global economy. The company’s steel demand will be driven by consumption rather than investment, he said.

T.V. Narendran, CEO and MD, Tata Steel Premium
T.V. Narendran, CEO and MD, Tata Steel

Tata Steel chief executive and managing director, T.V. Narendran, in an interview, discusses Q4 results, obstacles in European operations, and prospects for domestic steel demand and pricing in relation to China’s economic recovery. He expects domestic demand to grow either at a rate matching or exceeding gross domestic product growth. Narendran expects China’s 5-6% growth to be a major boon for the global economy. China's steel demand will be driven by consumption rather than investment, he said. Edited excerpts:

When do we expect recovery for European operations that remain under stress?

We are not back to normalized levels since the demand compression happened in Europe. But with energy prices falling, user and consumer industry will start doing better. Gas and electricity prices have remained very high and at multiple times of pre-Russia Ukraine war. While prices have started settling down, we have a policy where we hedge 25% of our requirements three quarters ahead. So, we will get the benefits of lower spot prices, and cost benefits will take a few quarters to reflect.

In Netherlands, a blast furnace realigning has just started, and we have been building stocks over the last few months. Thus, our working capital requirements have increased. This ongoing quarter may also not be so great. Production will be lower although sales will be higher because we have slab stocks. But if you have less production, costs are higher, as fixed costs get distributed over volumes. Therefore, we expect Europe to be a challenge till the second half of Q2, but Q3 and Q4 of FY24 should be much better as Netherlands comes back to its normal levels.

Has China’s opening up helped the steel industry?

Demand in Europe is still quite fragile. After China opened, Europe was very optimistic, as a lot of the countries export capital equipment, among other things to China, particularly Germany and Italy. However, China has not taken off as expected. The steel companies in China have increased production in anticipation of rising demand and in March (90-95mt) its was the highest in a long time. But consumption did not keep pace with output. China exported 8 mt, which is 2 mt more than what they normally do, putting pressure on steel prices that have softened a bit. As China did not take off as per expectations, the iron-ore and coal prices also have softened. Chinese companies can further drop prices as input prices are declining, but for significant drop in steel prices, coal prices must go down further.

Will the recovery in domestic steel prices sustain?

Domestic, yes. We guided that Q1 steel prices will be at 1,200 better than Q4. The demand fundamentals are strong, but sentiments should improve. If sentiment is positive, offtake will be more than demand, if not, offtake will be less than demand, since consumers will postpone buying, assuming they may get better prices over time. So, inventory correction will take place. Tata Steel has reasonable inventory, after a planned shutdown in April.

After the Centre withdrew duty, did the export momentum improve?

Exports picked up after export duty got removed and that was one of the reasons why the last quarter was strong. Also, international prices improved so export opportunities were good. Everyone exported. We export 10-15%, but overall Indian exports did better. This is good, as we have iron-ore reserves, and we must utilize all export opportunities. China, Japan and Korea, which import iron-ore, export 150mt of steel. India must address this big market.

What about volume growth and debt reduction in FY24?

For the acquired Neelachal Plant, we had said we will reach 1 mt rated capacity in the first year; we have already done that. Kalinganagar expansion is going on, the pallet plant and cold rolling units are in production, while trial runs are ramping up. Within 12 months coke oven, blast furnace and others will be coming up, and in the next financial year we will start ramping up volumes, and contributions will start from FY25. This quarter we have reduced debt by 3,000 crore. For the year, debt increased as we acquired Neelachal. Working capital requirement was also higher with raw material prices moving up. But this year we are committed to reduce debt by a billion dollars. Last year, we spent 12,000 crore on acquisitions, besides working capital was higher by around 6,000 crore which will not be the case this year. So, we should achieve our debt reduction targets with cash flows.

What is the demand outlook for India and China?

India steel demand growth should match GDP growth, which is growing at 6-7%. Since we are spending so much on Infrastructure, ideally steel demand growth should be at 8-9%. In China when they were building infrastructure, the steel demand growth was 1.5 times Last year, we grew 10-12% against low base.

At 8-9% we are adding 8mt of steel demand every year. So, to maintain market share, Tata Steel needs to add 1-1.5mt capacities. Going from 20-25mt over two years we are not under any stress on volumes. Also, this year there is no export duty, which was there last year, so we have the option of higher exports in case domestic demand is slow.

China growing at 5-6% is a great story and will have huge positive impact on global economy. The only difference is China is pivoting to consumption-led growth, not investment-led growth, so intensity of steel growth will be lower than earlier. For me China steel demand should not drop and exports should not exceed 5-6mt.

What are the benefits accruing from specialty steel PLI scheme?

We have seven applications, and we may be getting most of it. But the limit is around 200 crore a year currently. So, honesty we do not decide on investments based on the PLI scheme.

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Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Updated: 05 May 2023, 01:39 PM IST
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