‘Tata Steel will return to debt repayment trajectory next year’
4 min read . Updated: 08 Feb 2023, 06:01 AM IST
PremiumWe will be taking part in mining auctions if it is iron ore mining. We are not interested in thermal coal or coking coal, says Tata Steel MD and CEO T.V. Narendran
NEW DELHI : Pension adjustments, the need to build stocks in the Netherlands for a maintenance shutdown, and higher coal prices were the three key reasons for the worse-than-expected financial numbers for Tata Steel Ltd in the December quarter, managing director and chief executive T.V. Narendran said. In an interview, Narendran said the worst is over for Europe and India, and adding high steel prices will sustain in the short to medium term. Edited excerpts:
After a challenging December quarter pulled down by the European business, what is the business outlook?
The Indian business today is much bigger than it was before. When we acquired Corus, Tata Steel India’s business was 5 million tonnes (mt), Corus was 18 mt, and Southeast Asia was 2 mt. Out of Europe’s 18 mt, 10 mt in the UK proved to be the weakest. Today, we have India business which is 20 mt and is the strongest part of our portfolio, while the weakest part of the portfolio is 3 mt in the UK.
The India business will become 25 mt in the next two years; we want to take it to 40 mt, so you know, even if we have UK’s 3 million tonnes, it again becomes less and less material to the overall performance of Tata Steel.
What drove the negative performance in Europe?
The negative path is driven by two big factors. One is the pension adjustments because, basically, we are moving the pension to insurance. Though we are at a pension surplus now, when we moved that pension to insurance, the pension surplus also moved, and the deferred tax credit got reversed. We have a ₹2,000 crore impact and will have some more of that to come over the next six months as we move the balance 40% of the pension also into insurance. But this makes Tata Steel a stronger company and less vulnerable.
The second issue we faced in the quarter was we built stocks in the Netherlands for a blast furnace maintenance coming up in April. Coking coal prices have seen extreme volatility in the past year. Such extreme volatility in a short period of time has a huge impact on working capital supply chains because you buy coal today, which will come after three months. Coking coal prices went up; because of that, gas prices and energy prices in Europe went up six times. And then, on top of that, in India, we had the export duty. We had a whole bunch of other challenges to deal with. So, that way, it’s been a challenging quarter, I mean a challenging year.
Was the slowdown in Europe as expected, worse or better?
So, I think October-December was quite bad. If you were to ask me, and that’s reflected in steel prices because the steel prices dropped by about £160 per tonne from Q2 to Q3, right, and that’s a very significant drop. But I think as we came towards the end of the quarter, one is the fact that China was opening up, and that was positive for Europe too. In general, we saw a lot of lot more optimism in Europe as China started easing the restrictions on the pandemic and opening, and the economy started picking up. Third, because China opened up, international steel prices have also increased by about $100. In some sense, I expect that the last quarter was the worst quarter for Europe. As of now, I feel the worst is behind us, both in India and in Europe.
How are the domestic prices panning out? Is the recent increase sustainable, and how do you look at it?
So, there are two things which will affect domestic prices—one is, of course, the international markets, and the second factor is coking coal prices, which are increasing. So, that will have an impact on the price not immediately but in the quarters ahead... and the third is, of course, domestic demand. But the good thing is, now there’s no export duty, and companies can export, which will help keep prices firm even if the capacity is more than demand in India.
On debt repayment, with all this expenditure, will you be able to continue with your $1 billion debt repayment plan?
We are committed to that ambition. Ever since we made that announcement—I think it was 3-4 years back—apart from this year, every year we have done that, if not more. This year was a challenging year for multiple reasons, as I explained, plus we acquired Neelachal Ispat Nigam Ltd. I think we made this announcement after acquiring Bhushan, right? And ever since, we have stuck to that commitment. This year, we won’t fulfil that commitment, but from next year, we are going to stick to that because the Neelachal Ispat acquisition is behind us, and the asset will start giving us the returns and, hopefully, coking coal prices will not rise.
On acquisitions, do you have an appetite for more?
We will be participating in mining auctions if it is iron ore mining. We are not interested in thermal coal or coking coal. There’s not much on offer. We will if it is in Odisha, Jharkhand. Steel plant acquisitions, I do not think we need to because, with the existing sites, we can go up to 40-45 mt, you know, so we don’t really need another to fulfil our growth ambition, at least for the next 10 years. But obviously, you know we’ll take a call when that opportunity comes, and National Mineral Development Corp. (NMDC), did not participate. When Rashtriya Ishpat Nigan Ltd (RINL) comes, we’ll take a call closer to the date.
Is the acquisition of Neelachal on track?
Yes, it is as per schedule. Hopefully, during the next fiscal, we’ll complete it.
