Industry spreads globally have shrunk in recent months: Tata Steel CFO

'Steel is a foundation industry for any nation', says Koushik Chatterjee

Amid a challenging macro environment, Tata Steel Executive Director and Chief Financial Officer Koushik Chatterjee tells Ishita Ayan Dutt about the company’s plan to turn around its Europe arm. Edited excerpts:

What is the transformation plan to make Tata Steel Europe cash-positive?

Tata Steel Europe is implementing a transformation project to become positive on operating cash flow. Several levers have been identified for structural cost takeout. Such as element-wise reduction in cost of goods sold, procurement, optimising of working capital and recalibration on capital expenditure. These are in addition to the improvement programmes being implemented in both Netherlands and the UK.

What savings are you looking at?

For many years, we have had improvement teams between the India and European operations in multiple areas. We also have one approach across Tata Steel in many functions, including finance, strategic procurement, shipping and logistics. These are being strengthened to drive system synergy. We are also focusing on engineering and projects, and other procurement areas where we see significant opportunities, both commercially and to enhance the efficiency of processes. This will also help TSE materially. 

Will the plan for Europe help it to become cash-positive this financial year?

Industry spreads globally have shrunk in recent months, amid a very challenging macro environment. The focus is certainly to meet this objective. All hands are on the deck across Tata Steel, to undertake the structural changes required to enhance the competitive position of the European business. We also expect the spreads between raw material and steel to restore, with the recent indication of falling coal and iron ore prices internationally. 

 The way forward for NatSteel?

We have mentioned that we will continue to look for strategic partners for the (Singapore-based) business (acquired by Tata Steel in 2005) as we continue to focus on its performance and to meet the customer requirements. It's been a self-sufficient business always, with a strong market presence — it has never depended on parent support. It’s also one of the best-run electric arc furnaces, with good operating performance and runs on tight working capital norms. Therefore, it’s been more of a strategic call to consolidate and simplify the overall business, rather than any funding support related issue. 

Will there be further piecemeal divestment in Europe?

We had announced the divestments of some of the smaller businesses in Europe, including Kalzip and Cogent. We completed the Kalzip sale sometime back and are at an advanced stage in restructuring the electrical steel business. While there might not be big options, we continue to evaluate the portfolio and look for opportunities to unlock investments. 

What’s the assessment on Brexit (Britain’s impending departure from the European Union?

Well, we see the new government is looking to negotiate the issue of the (Irish) backstop. However, chances of a no-deal Brexit remain elevated, with very little time now to make substantial changes on the withdrawal agreement. 

What is required to revive steel demand in India?

Steel is a foundation industry for any nation. More so for a nation like India that aspires to leapfrog as one of the world's largest economies over the next decade. Production of materials like steel and efficient usage of natural resources like iron ore would be very key for India over the next few decades. 

Currently, we might see lower growth due to various internal and external factors. However, India’s long-term attractiveness remains very high. Steel is vital for various end-user segments, be it industrial and residential construction, automobile, engineering and appliances, and several others. We have the benefit of a large population that is young and aspirational. What is required today is essentially the restoration of confidence to invest and consume. The government has recently started to announce several initiatives and, hopefully, this will have a positive impact on the economy in the coming quarters. Consequently, on steel consumption. The Indian steel industry remains very competitive globally and, hence, will be well placed to grow in the future.

How do you see the recent currency volatility?

Currently, trade tensions are having an impact on global currencies. The unexpected escalation in the US-China trade conflict late last week has had an impact on strengthening of the yen and weakness of many of the emerging market currencies, including the rupee. The Fed’s (US Federal Reserve’s) annual retreat did not provide much clarity on the broad strategy regarding the dollar. The Fed might not have much appetite for significant rate cuts at this stage because of the strong US data on consumer spending.

 However, if the trade tension risk escalates further and news on US labour markets becomes adverse in the future, things might change materially. We also need to watch the actions of the People’s Bank of China (PBoC), as an abrupt and disorderly depreciation of the renminbi is also not in the best interest of China. 

The PBoC could intervene to smoothen the excessive movements. 

The rupee tested the 72-mark (to the dollar) and could gain back some of the recent depreciation with the recent announcements of the government. Overall, a weakening rupee does enhance a country’s competitiveness and the (value of the) currency is increasingly becoming a tool for many countries to offset the adverse outcome of recent trade protectionism.