New UK govt examining our proposal, promised to come back soon: Narendran

Tata Steel has been in discussions with the UK government during the last two years for financial support to transition into a greener steel company, with some of the assets coming to their end of life in a couple of years. Managing director (MD) and chief executive officer (CEO) T V Narendran tells Ishita Ayan Dutt that the new government is engaging with the proposal and has promised to come back in the next few weeks. Edited excerpts:

Export duty has been removed. What impact will it have on Tata Steel?

It will help; the sentiment becomes a bit more positive. And it gives an option, in case the domestic market does not keep growing. Earlier, that option was costing us 15 per cent more than it should. But given the sentiments in the international market, export opportunities are limited right now. 

You indicated at the Make-in-Odisha conclave about doubling capacity across locations in the state. Is that part of the 2030 plan?

We have said that we want to be at 40 million tonnes (mt) by 2030. And, most of the expansion is happening in Odisha; Jamshedpur will be at the current capacity level. We will add some EAF (electric arc furnace) units like the one in Ludhiana. If that is successful, then over the next few years, we may build such units in the western and southern parts of the country. But largely, most of the expansion will happen in Kalinganagar, Neelachal or the Bhushan plant in Meramandali.

Given the current market conditions, do you see the expansion happening by 2030?

The good thing is, because it’s all organic, we can pace it depending on the market. Internationally, there is a hangover of high gas prices, the Ukraine war and higher interest rates. But as interest rates settle over the next couple of years, we believe that the macroeconomic situation outside India will also improve. There will be rebuilding in Europe and investment in green infrastructure. But we are waiting to see what is happening in China, which has been a spoiler in the last few months. In India, the demand will continue to grow.

With high gas prices, what is the outlook on Europe?

Gas prices have come down in the last 3-4 weeks because Europe seems to have enough gas to take care of this winter. But it’s a bit fragile because they are worried about the next winter — in case, the war prolongs. The governments are supporting whenever the gas prices are high. Normally, for steel spreads, we look at iron ore, coal and steel prices. Gas is not a significant component. But gas prices going up have really eaten into the spreads. That’s why there is pressure on the bottom line. We expect things to get better over the next few months.

Is there any headway in discussions with the UK government on financial support?
 

Conversations are going on; the new government is examining our proposal. They have asked for some time to get back. We have highlighted to them our financial situation given the way things are in Europe. And, we have been promised that they will come back soon. We have given the government enough information to take a call.

Are the discussions happening afresh with the new government?

Yes, they are engaging with the proposal. The Liz Truss government was also engaged with the proposal. But by the time they could take it to any conclusion the government changed. The new government is now engaging with the proposal. And, they have promised to come back in the next few weeks.

Tata Steel’s blast furnaces in the UK are coming to the end of their life. Are you running out of time?

End of life is in another couple of years. But the other challenges are the current macroeconomic conditions and gas prices. Energy costs in the UK are anyway high. We don’t want a situation where we are bleeding. 

What about discussion with the government in the Netherlands on support?

We are also in conversation with the Dutch government. We have sent a formal proposal and they will come back to us. But there, it’s slightly different. We don’t have a situation like in the UK where there are end of life assets. Also, the Netherlands unit has financially always been in a stronger position than the UK unit. And, the transition there was planned in the next 7-8 years, anyway. But gas prices going up are provoking us to seek some comfort from the government about the future.

When does Tata Steel have to plan for the green transition in the UK?
 

One trigger is the end of life assets. Before that, we have to take a call anyway. The sooner we can do it, the better. Last year, profits were good. If that continues, then we have a longer rope; if that’s not the situation, then we have a shorter rope.

Tata Steel made record profits in FY22. However, are the days of super-normal profits over for now?

That depends on what you call super-normal profits. If you look at Tata Steel’s performance in H1 of FY23, how many years have we made this kind of profit in the history of Tata Steel? It’s probably once or twice and we are calling it a bad year.

So it’s a relative issue. The dynamics of the steel business has changed. The average price over this decade will be higher than the average price over the last decade. Steel prices are lower but it’s still at $530 a tonne whereas in the last decade, we have even seen $350 a tonne. But I don’t think steel prices will go to $350 because coking coal prices are higher today and China is not going to export cheap. So it’s back to macroeconomic issues driving steel; on an average, you will see prices in the range of $550-$650 a tonne.

At $530 a tonne for steel prices, will the expansion planned by all steel players be viable?
 

I don’t think so. In our industry, it’s always, who’s the last man standing. In the upcycle, everyone makes money; in the downcycle, where you are on the cost curve matters. Not everyone will have the cash flows to support their expansion plans. There will be some tempering of plans because steel is a capital-intensive industry.