Flexibility in payment of dues to the government, railways and banks can help steel players overcome the liquidity crisis in the steel sector triggered by the COVID-19 pandemic, a top Tata Steel executive has said.
Also some relief in the duty on steel making raw materials can help Indian steel industry become more competitive, Tata Steel CEO and Managing Director T V Narendran said inan interview toPTI.
"The industry has already represented to the government on a number of issues including some flexibility on payment of dues to the government, railways, banks etc. so that we can tide over the liquidity crisis. This also includes some support on exports as we are more dependent on export markets than domestic markets.
"The government had been engaging very closely with the industry on the support required to tide over this COVID-19 crisis," he said while replying to a question about the steps required to mitigate the impact of the COVID-19 pandemic on the sector.
The MSME sector is struggling. The standalone downstream units did not get the permission to operate for the first three weeks of the lockdown as they were not seen as continuous process plants and remained shut, he said adding the government spending on infrastructure is required soon and all dues to industry that are stuck should be released to help the flow of money through the economy.
There is also a need to work aggressively to attract foreign investment into India and focus once again on the Make in India programme. This crisis can and should be converted into an opportunity, he said.
When asked whether players also expect some relief in duty cut on raw materials, Narendran said the government can play a vital role in helping the industry as import duties on any raw material particularly metallurgical coal, which is not available in India and has to be imported, just add to the cost of doing business and reduces the competitiveness of the Indian industry.
Speaking on the impact of the lockdown, the CEO further said in the initial days, the challenge was to keep the plants running even at lower utilisation levels. The construction industry, which is a steel consuming sector, was also significantly impacted. The steel industry was dependent on export markets for orders.
"However, over the last few days we are starting to see some pick-up in domestic consumption as some of our customers have got permissions to start work. I can see a revival of some activity as more contracts are being awarded and more sites are getting permission to operate.
"Also, the best thing the government can do to revive the economy is to accelerate the spending on infrastructure. It not only allows money to flow back into the economy, but also creates employment opportunities for semi-skilled workers across the country and also helps bring down the cost of doing business through better infrastructure.
"We are a capital-intensive industry with significant fixed costs and so operating at less than optimal capacity is not ideal for us. I expect the steel demand to pick up post lockdown as construction and industrial activities will pick up. It may take two or three quarters to come back to normal," he said.
The industry veteran also cautioned that there will be a need to check imports in post lockdown period as some countries may try to dump in their products into India taking the undue advantage of the situation.
"We need to be watchful on imports so that we don't become a dumping ground for other countries. To be fair to China, so far, we have not had a problem and in fact India is now exporting steel to China. But we are also watchful about Japan and Korea as over the last few years the problem has been of exports from Japan and Korea to India rather than from China to India," the CEO said.
To a question related to the impact of COVID-19 on steel companies' expansion plans, he said "while in the long run India can and should have a large and healthy steel industry because it is blessed with raw materials and a growing market, in the short and medium term the focus should be to restore the financial health of the industry."
"So, I would assume for the next two to three years the focus will be more on deleveraging over growth and then as the financial health of the industry improves, we can look at growth again," he added.
Another steel consuming sector auto has also been impacted due to the lockdown.
He said the auto industry has been significantly impacted and all auto customers of the company were closed till recently. Some of them have now got permission to operate their plants but they are also struggling to get their inbound supply chain and vendor ecosystem to operate.
"They also need to see their dealerships open and liquidate inventories already in the system. On the one hand, they may get impacted by people postponing discretionary purchases but on the other hand we may have people moving from public transport and shared vehicles to own vehicles to reduce the risk of exposure to the pandemic," he added.
As the government focuses on construction and infrastructure, a pick-up in demand for commercial vehicles may be seen. "But I think we are in for a few challenging quarters," he said.
Speaking on the company's Europe operations, he said Europe is not under a complete lockdown and hence Tata Steel has been operating at about 70 per cent of the normal levels there.
"We see the activity starting to pick up again after Easter. In South East Asia, till recently we did not have a lockdown in Singapore and so were fairly normal apart from the usual slowdown due to the current context. Thailand plants are still operating but demand conditions are weak due to the pandemic," Narendran added.
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