Steel prices are buoyant across the globe and Tata Steel has been a big beneficiary of the bull run in this commodity. If inorganic opportunities come, Tata Steel will look at them from merit, from what value we can create out of it, and what value we can put into it, says Koushik Chatterjee, ED & CFO of Tata Steel.
What about steel price dynamics? We’ve seen raw material prices going up. Every sector is facing inflationary pressures and supply constraints. What are the factors at play to help you offset the cost pressure?
Chatterjee: So, the raw material is also a commodity which is going through its own upcycle at this point of time, and we see this in raw material prices. I think that has been certainly increasing, and it is a function of supply and demand, and so we have seen an increase in iron ore prices for a long part of the last six months. It’s now going down, so these volatilities happen.
It’s important to understand the spreads. I think we are very firm and focused on ensuring that we manage the spreads in the best possible manner to return efficiencies. It is within the spread that you make your margins.
As far as Europe is concerned, what you saw essentially is a lag effect of these bond spreads and the long-term contract spreads. The European business generally follows a larger proportionality of contracts, which is one year, six months, three months, etc. Therefore, when new contracts are renewed, it comes at a higher specs than what we've seen in the past. That will get corrected.
It's a time-deferred issue, and, therefore, it is going to get corrected in the second quadrant. We’re already seeing that impact and the stretch will increase, but the fact is that because of where the market is, where the broader supply demand is, spreads are certainly at a much higher and comfortable level.
What about prices of steel and Tata Steel’s realisations this quarter?
Chatterjee: I think the spreads in Europe, in particular, is going to expand materially, and, in India, they will hold.
There is already an investigation underway on charges of cartelisation of the steel industry in India. Will that impact Tata Steel’s pricing power?
Chatterjee: The best answer is to say is that the steel industry is a global industry. Therefore, no one or two or a few people can have that. I think it is a benchmark to the rest of the world.
I think it is the way in which we actually work, with our customers and distributors and engineers, to ensure that the price formulation is in a manner which is linked or aligned to the product’s market movements. I think that's how this business works. This is how pricing works. It is not something that any one person or a few can influence. It is the same pattern of supply-demand dynamics. It also depends on how the economy is growing.
What is Tata Steel’s strategy for gaining more iron ore mines in India over the next few years?
Chatterjee: As far as new leases are concerned, you know there is a very transparent way of auctioning now in the country. We participate in the ones which meet our requirements or to the extent it meets our option levels. That’s how it will happen in in the future as well.
The government has stated its position on selling RINL & NINL. How aggressive will Tata Steel be, especially with regards to NINL?
Chatterjee: I think it's important to say that it is seen as a very strong organic pipeline. And we will pursue that pipeline in line with the market growth. As you know, we are very aggressively looking at completing our expansion in Korea. Beyond that, we do have further plans to grow the business in India. If inorganic opportunities come, we will look at them from merit, from what value we can create out of it, and what value we can put into it.
And, finally, on your overall strategy. Will it be a value play or a volume play for Tata Steel, going forward, and second, to be future-ready for an imminent probable downside, because it's a cyclical play, how are you safeguarding your position, especially in reducing debt levels?
Chatterjee: So, it's a value play with volume, so it's not either or. I think we mentioned earlier that we have a very strong pipeline, which we will certainly go through, and, therefore, it will create more value for us. We are very focused on profitability, cash flows and balance sheet.
We are also focused on new businesses like new materials businesses and so on. So, it's not binary as value is involved, that is volume. I think the market is going to become bigger and bigger. So I think there is space for everyone, we will be playing our part in terms of aiding our focus areas, providing value to our customers and also ensuring that our profitability and cash flows are the best as far as the business cycle is concerned. We play the market but I think it's very important to ensure that our own competitiveness and our focus on that never gets diluted.