We're now at pre-Covid levels on volumes and prices: Tata Steel's Narendran

In a Q&A, the firm's MD & CEO says there is a pick-up in consumption acroess sectors and keeping up with market requirements is a struggle

The recovery for the steel sector is faster than expected, and prices are at a high after a while. In an interview, Tata Steel managing director and chief executive officer, T V Narendran, tells Ishita Ayan Dutt that across sectors there is a pick-up in consumption and keeping up with market requirements is a struggle. Edited excerpts:

Are current steel prices sustainable?

The long-term average for steel prices during the past 10-12 years is $600 a tonne. We are nowhere close to the top, globally. Since 2015, steel prices have struggled. But as China contributes less to world exports and prices continue to remain high, steel prices in the $500-$600 range should be more common than uncommon.

International steel prices and the current iron ore and coal prices are just about coming to long-term spreads. In India. I am very optimistic about demand. Across sectors, we are seeing a consumption pick-up. There is some concern that a fresh wave of the pandemic can disrupt the recovery, but otherwise, steel consumption has to grow at GDP rates or higher. 

So, the steel industry should do well and Tata Steel being one of the lowest cost producers with a very strong franchise in the marketplace will deliver. 

Is the economic recovery better than anticipated?

It’s not just better, but faster. Even though we have shifted from exports to domestic, we are struggling to keep up with market requirements, which is a good problem to have. We had thought that things would return to normalcy in the January to March quarter, but we are now at pre-Covid levels, both in terms of volumes and prices. 

Recovery in which segment has come as a surprise?
 

First off the block, was rural markets, which started in July. A strong monsoon combined with a focus on rural infrastructure and the reverse migration helped. The segment that recovered faster than we thought it would, was automotive. First, passenger cars started picking up; commercial vehicles segment was slow, but medium and light commercial vehicles started showing improvement from September. Now, heavy vehicles have also started picking up. 

The more recent surprise is the residential housing market. 

Industrial construction, anyways, has been doing well because of the investment by companies in the supply chain. Infrastructure is also reasonably strong. The recovery is across segments.

What kind of growth is Tata Steel likely to pursue?

The focus right now is on completing the second phase of Kalinganagar. That will take us to 25 million tonnes capacity, we are already at 20 million tonnes. Beyond 25 million tonnes, we will take a call in two years. We will try to grow at least at the rate at which consumption of steel is growing in India. 

The India business anyway generates enough cash to support its growth. So, we are confident of growing without adding to the debt. But we will keep an eye on the balance sheet while deciding on growth opportunities. 

When would you revisit your capex plans?

In Q4, we will go to the board. By then we would have a good sense of the SSAB transaction.

It appears from the SSAB transaction and pause on expansion that deleveraging has taken centre stage. Will growth be sacrificed for it?

The only thing we paused was expansion of Kalinganagar. Once we are on track as far as deleveraging goes and the SSAB transaction is done, we will be in a very comfortable position. Then the board will be in a position to continue to support growth in India. We can always pursue growth, but it should be a long-term sustainable growth.

Many of the iron ore mines auctioned, have not been brought to operation, do you stand vindicated by not bidding aggressively?

We knew that some of those bids were unreasonable and impractical. So, we participated and bid at prices that would work for us. We will continue to participate in future auctions, but we will bid, keeping our judgment in mind and not get carried away by the moment. We will be very prudent.

In chrome ore, we bid reasonably aggressively because we knew there was an opportunity there. With iron ore, we knew that these prices would be a struggle to justify.

Your captive iron ore mines would come up for auction in 2030, how would it impact Tata Steel?

We have been operating these mines for a 100 years. Before 2030, we will keep bidding for other mines that come up for auction and hopefully we will get some at reasonable prices. So, there will be continuity. 

We managed this transition for chrome ore mines. We have been operating the chrome ore mines also for almost 100 years. Then in the auction we bid and won it and then won two other chrome ore mines. Today, we are a much stronger player in chrome ore than we were earlier.

Our iron ore cost may increase, but we can live with that increase. We will drive efficiencies in the value chain and we are preparing for 2030.