‘Tata Steel’s European business to improve by Q3’

When do we expect recovery for the stressed European operations?

We haven’t come back to normal levels since the demand slump in Europe. But with energy prices falling, user and consumer industries will start doing better. Gas and electricity prices remain very high and in many of the pre-Russia Ukraine war times. While prices have started to stabilise, we have a policy where we hedge 25% of our requirements three quarters in advance. So, we will get the benefit of lower spot prices, and it will take a few quarters for the cost benefit to reflect.

In the Netherlands, a blast furnace realignment has just started, and we have been building up stock for the past few months. Thus, our working capital requirements have increased. This ongoing quarter may not be so great either. Production will be less though sales will be more as we have slab stocks. But if you have less production, the cost is higher because the fixed costs are distributed over quantity. 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 the Netherlands is back to its normal levels.

Has China’s opening up helped the steel industry?

Demand in Europe is still quite fragile. After China opened up, Europe was very optimistic, because many countries export capital equipment to China, especially Germany and Italy. However, China did not take off as expected. Steel companies in China have increased production in anticipation of rising demand and it was the highest in a long time in March (90-95mt). But consumption has not kept pace with production. China exported 8 million tonnes, 2 million tonnes more than normal, putting pressure on steel prices which softened slightly. Since China failed to take off as expected, iron ore and coal prices also softened. Chinese companies may bring down prices further as input prices fall, but for a significant drop in steel prices, coal prices must fall further.

Will the recovery in domestic steel prices last?

Domestic, yes. We guided that Q1 steel prices would be 1,200 better than Q4. Demand fundamentals are strong, but sentiment should improve. If sentiment is positive, offtake will exceed demand, if not, offtake will be less than demand, as consumers will postpone purchases, believing they can get a better price with time. So, there will be inventory correction. Tata Steel has reasonable inventory after the planned closure in April.

Did the pace of exports improve after the Center withdrew the duty?

Exports picked up after the removal of export duty and this was one of the reasons why the last quarter was strong. Also, international prices improved so export opportunities were good. All exported. We export 10-15%, but overall Indian exports have been better. This is good, because we have iron-ore reserves, and we should make use of all export opportunities. China, Japan and Korea, which import iron ore, export 150 million tonnes of steel. India should address this huge market.

What about volume growth and debt reduction in FY24?

For the acquired Neelachal plant, we had said that we will reach 1 million tonnes of rated capacity in the first year; We’ve already done that. Kalinganagar is expanding, the pellet plant and cold rolling units are in production, while trial runs are ramping up. Coke ovens, blast furnaces and others will come up within 12 months, and in the next FY we will start ramping up volumes, and contribution will start from FY25. We reduced debt this quarter 3,000 crores. As soon as Neelachal was acquired, the debt increased throughout the year. With the rise in raw material prices, the working capital requirement was also high. But this year we are committed to reducing debt by one billion dollars. last year, we spent There was an excess of Rs 12,000 crore on acquisitions other than working capital 6,000 crore which will not happen this year. So, we should achieve our goal of debt reduction with cash flow.

What is the demand outlook for India and China?

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

At the rate of 8-9 per cent, we are adding 8 million tonnes of steel demand every year. Hence, to maintain market share, Tata Steel needs to add 1-1.5mt capacity. Going from 20-25 million tonnes in two years, we are not stressed on volumes. Also, there is no export duty this year, which was last year, so we have the option of higher exports in case domestic demand slows down.

China is growing at the rate of 5-6% and this will have a huge positive impact on the global economy. The only difference is that China is turning to consumption-led development, not investment-led development, so the intensity of steel development will be lower than before. For me, steel demand from China should not fall and exports should not exceed 5-6 million tonnes.

What are the benefits of Vishisht Steel PLI Scheme?

We have seven applications, and we might be getting most of it. but the border is around 200 crores in a year at present. So to be honest, we do not take investment decisions on the basis of PLI scheme.