PremiumTV Narendran, chief executive and managing director, Tata Steel, said the current cycle in the steel segment has not only accelerated its efforts to deleverage, but also ensure its European operations are not a drain on the company
MUMBAI : After reporting its highest ever profit and revenue for Q1FY22, Tata Steel Ltd is racing ahead with its deleveraging and growth plans. In an interview, T.V. Narendran, chief executive and managing director, Tata Steel, said the current cycle in the steel segment has not only accelerated its efforts to deleverage, but also ensure its European operations are not a drain on the company. Edited excerpts:
Is this boom in the steel industry sustainable?
I think there are some structural changes that have happened, hence, I am not predicting that steel prices will stay forever. However, fundamentally we believe that structurally the industry is in a healthier place. In the last cycle when things were good, everyone invested in capacity, including China. And China in the peak between 2000 and 2010 was adding 50 million tonnes a year of capacity and that overhang is what we saw during 2010-20. This impacted everyone. But that era is over. China is not adding any incremental capacity. The only country that is adding capacity now is India. However, in India it’s not easy to add capacity. We believe that the balance between both demand and supply would be better maintained now and, hence, we will continue to invest to grow. Outside India, we will be self-sufficient, and those businesses will manage by themselves from a cash point of view. Our focus will be to grow from 20 million tonnes to 40 million tonnes per annum in the next 10 years in India and we stand by that.
What is driving demand?
Fundamentally, infrastructure is going to be the biggest driver of consumption. The government is spending more on infrastructure than it has ever done. That is very important. Any infrastructure you build is steel-intensive, as construction accounts for 60% of steel consumption anywhere in the world. Also, as consumption grows in automotive, appliances, etc., steel demand will grow. Growth will also come from the focus on piped water for everyone in India. If you are going to have the oil and gas network being built in India, that is a positive, too. So, multiple segments are adding to demand growth.
Will you be looking at both organic and inorganic growth?
We would be looking at both. For flat products, it will be organic because we have enough potential to grow in Kalinganagar and Angul. Also, as a company, we believe that for flat products, fewer, but larger sites is the right way to go. For long products, it will be fragmented, so there will be different ways to grow for us. Organic opportunities are there for us particularly in Jamshedpur and Usha Martin sites.
The other is inorganic opportunities. We are participating in the process of Neelachal Ispat Nigam Ltd whenever it comes out. We are growing through the recycling route in long products. We have set up India’s first recycling facility in Rohtak, which is now operational. We are also looking to convert scrap into steel, as we do in South-East Asia, in northern, western and southern India. In the eastern part of the country, we will stick to iron ore as there is a lot of iron ore availability.
Are you still looking at exiting your European operations?
We are not under any pressure to exit these businesses now. There were two drivers for it when we were pursuing options. One was that a consolidated steel industry is good for Europe. But the competition commission at that time thought otherwise. So, there was no point pursuing consolidation if it does not get regulatory clearance.
The second driving factor was our need to deleverage and our need to not have the European business be a strain on growth opportunities in India. That is now behind us as we are able to rapidly deleverage, and the European business is no longer a cash drain on us. However, in future if there is an opportunity, we will consider it on merit.
How are you prioritizing deleveraging over growth?
Till last year, we said we will prioritize deleveraging over growth and that’s why we slowed down the Kalinganagar project during the pandemic. But once things started coming back on track, we accelerated the Kalinganagar project. Having said that, we have enough headroom to borrow if we want and the headroom will keep increasing.
Secondly, if at all, you will need to borrow only if you are buying something big. Organic growth can be supported through the cash flows being generated in India.
Because for a 20 million tonne business, which at the lowest point is cash positive, we don’t see a problem supporting our growth in India. So, we are in a comfortable position to chase our growth ambitions as well as deleverage.
How do you see Iron-ore prices behaving?
Globally iron-ore prices dropped from $200 a tone to $170 a tone which helps us in Europe. Because when China cuts production, steel prices remain stable, but iron-ore prices drop as China is the biggest buyer of iron-ore. So, if steel prices remain stable but iron ore prices drop, its good for our European business as the spreads improve. The India business does not buy much iron-ore but buys pellets which is dependent on the iron-ore price. We also pay a lot of royalty based on the market price of iron-ore. So, when price drops, that helps us from a cost of buying pellets and the royalty payment point of view.
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