Domestic flat steel prices unlikely to go up anytime soon: Tata Steel CEO

In an interview with Business Standard, T V Narendran talks about the company's thrust on exports in 2021-22 (FY22), Europe operations becoming self-sufficient, and the domestic demand scenario

With domestic steel prices not expected to rise in the same momentum they did a few months ago, Tata Steel is banking on strong volumes to sustain its earnings before interest, tax, depreciation, and amortisation (Ebitda) in the midst of rising costs. In conversation with Aditi Divekar, T V Narendran, chief executive officer and managing director of Tata Steel, talks about the company's thrust on exports in 2021-22 (FY22), Europe operations becoming self-sufficient, and the domestic demand scenario amid an anticipated third wave. Edited excerpts.

Domestic steel prices have corrected recently. There is also resistance from the consumer industry against price hikes. Supply is high in the market. How do you see the pricing scenario for steel producers?

Between the flat and long steel products, the latter faces higher pricing pressure when the economy comes under pressure. This is exactly what has happened during the pandemic. Long steel prices had dropped over the past few weeks, but have started to go up. If construction activity comes back and the infrastructure sector picks up, the demand-supply balance will get better from October onwards.

In flat products (which takes its cue from global markets), Europe and the US steel prices have been higher. In flats, if there is any slowdown in domestic demand, exports are always an option. Having said that, the domestic automobile (auto) industry is coming back reasonably well in select segments. We may not see prices go up the way we saw them rise three-four months back.

With domestic steel price-rise momentum not staying strong, how do you see Tata Steel's Ebitda in the coming quarters? The company had clocked a record-high Ebitda in the April-June quarter.   

Our Ebitda per tonne may not increase in the second quarter. There is cost pressure due to increase in coal prices and other consumables. But the overall Ebitda can get better since there is more volume upside potential in the subsequent quarters than a margin upside. First quarter (Q1) was not the best volume for us due to Covid (second wave) impact and oxygen diversion for medical use. The second half of FY22 is also expected to be better than the first half, in terms of volumes.

Since last year, steel companies have laid greater thrust on exports than the domestic market due to better pricing overseas. What is Tata Steel’s plan for FY22 exports?

We will be exporting around 15-20 per cent this financial year, which is higher than the normal 10-15 per cent we do every year. In Q1 last year, we exported 50 per cent since the domestic market was completely shut. For 2020-21, the overall exports were 20-22 per cent. Our exports are mainly to Southeast Asia, Southern Europe, and West Asia.

Rumours of a likely third wave amid consumer industry anticipating a fall in prices has led to steel purchase getting deferred. How do you see the domestic demand scenario for the rest of FY22?

Sometimes demand is not exactly the underlying demand and there is a speculative element to it. Over the past two months, everyone was expecting steel prices to drop. Steel prices did drop, but I can see things have somewhat changed in August. Speculative components in demand are coming back. People are buying more in August. Construction activity is picking up. The rainy season is not a great time for us, but Q1 suffered largely due to unavailability of workforce. In the flat product segment, warehousing, oil and gas, and water piping are also helping, along with pick-up in select auto segments.

Europe deliveries have been good in Q1FY22. How are you seeing Europe operations for the rest of the year?

In Europe, we are focused on making it self-sufficient and cash-positive. We are also focused on separating into Tata Steel Netherlands and Tata Steel UK - this will allow the businesses to pursue alternative strategies, and give them greater agility and focus.

Union Commerce and Industry Minister Piyush Goyal at the Confederation of Indian Industry's virtual meet remarked that business practices of Indian industry were against national interest. He also challenged Tata Steel to demonstrate if they could sell in Japan and Korea, arguing that those countries being nationalists will not buy imported steel. What does Tata Steel have to say in response?

We do not wish to make any comments on this from our side.