Indian Steel prices are the lowest in the world: TV Narendran, Tata Steel

TV Narendran, MD & CEO, Tata Steel, spoke about the trend of steel prices, deleveraging guidance for FY22 and restructuring plans of the European operations among others during an exclusive interview with Zee Business Executive Editor Swati Khandelwal

"Undoubtedly, the steel prices have gone up in the last few months but if you will have a look at the domestic prices in India then it is the lowest in the world," TV Narendran said

TV Narendran, MD & CEO, Tata Steel, spoke about the trend of steel prices, deleveraging guidance for FY22 and restructuring plans of the European operations among others during an exclusive interview with Zee Business Executive Editor Swati Khandelwal. Edited Excerpts:

Q: Tata Steel has posted strong numbers with standalone operations reporting the highest-even EBITDA and PAT. The trends have been positive for the last few months. Do you think that the trend will continue, especially in terms of steel prices, which is showing a good uptrend?

A: There are a lot of things supporting the sector and it has a reason including there have been some structural changes in it. In the last 10 years, the most prominent thing was that a lot of export was coming from China and Chinese exports were impacting steel prices globally. From the last few years, we are seeing that China’s export is not so much, in fact, it is importing steel and we have also exported steel to China from India. Right now, we are seeing that China is actively discouraging exports and they have stopped their export remains from May 1, 2021.

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This means the Chinese steel export prices will continue to remain better. The second thing is that due to climate change carbon cost is increasing in many geographies, for instance in Europe the cost has increased, even in Japan, it has been announced that they will shut down the blast furnace production. Due to these factors, globally we are seeing that cost covers have changed a bit and have impacted the carbon cost. The third thing is that after the COVID, many governments are investing in infrastructure.

If you will see then there are plans to invest in infrastructure in the US. In the case of India, the last budget had a lot of focus on infrastructure. There is a continuous focus on infrastructure even in China. So, the focus on infrastructure improves the steel intensity of growth. This is the third factor and due to these reasons, we expect that in the next 5-10 years the steel cycle or the metal cycle will be slightly different from the last 10 years.

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Q: Do you think there is more headroom for price hikes?

A: Undoubtedly, the steel prices have gone up in the last few months but if you will have a look at the domestic prices in India then it is the lowest in the world. Because, if seen international prices then hot-rolled prices in the US is USD 1,500, in Europe it is Euros 1000 and in South India, it has reached $1000. Having an eye on all these, we can say that Indian prices are one of the lowest in the world today. But we are also seeing the demand situation and what impact wave two will have. So, we are watching and will do whatever is right. Indian exporters and Indian producers are selling most of their produce in India, only, and if there is a demand then we will prefer to sell it in India.

Q: Net Debt has improved by 28% YoY, What will be the deleveraging guidance for FY22?

A: Three years ago we said that we would reduce our debt by a minimum of $1 billion every year and we did it in the first year but were not able to do so in the second year because domestic markets were quite weak in that year. Last year, despite COVID, was there, we focused on debt therefore we gave a pause to our Kalinganagar expansion for some time and paid attention to cash. As there was a slight improvement in the market, we started seeing improvement and in Q3 and Q4, we were able to deleverage much more. Therefore, we could do much more than what we have planned. In the last three years that target we had, on a consolidated basis we have done more than that. In the coming days, as we have said a minimum of $1 billion per year of deleveraging and we will do it.

Q: Auditors are still sceptical about the European operation. What is the update on the restructuring plans of the European operations?

A: In European operations also you can see that on an underline basis, if seen in the Q4, then we have reached from minus (-) 170 million Euros to plus (+) 170 million. The European spreads that are visible in the bottom line are still quite low than the spot spreads because we have a lot of long term contracts in Europe. In fact, we have more long term contracts there as compared to India and in every quarter, the tenure of some of the other long term contract is completed and we initiate a new contract. Therefore, hopefully, in the coming quarters also, the European spreads that we have shown in our P&L will continue to grow. And, European steel prices are quite strong. So, last year as well, we were cash neutral in Europe and we didn’t have to take any cash support from India. It was our first goal that the European business should stand on their own and certainly this year they are standing on their own and going forward we hope that they will stand on their own. Secondly, we will continue the restructuring process and we are splitting Tata Steel Europe between the Netherlands and the UK and expect that we will get efficiency.

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