2019-06-17
Jun. 17, 2019 - In an interview, Mr TV Narendran, CEO & MD, Tata Steel shared his thought on how the trade war will affect Tata Steel, with excerpts as follows:
Domestic steel demand is expected to stay strong but this is mainly due to government’s infra spends because capex commitment from the private sector is certainly sluggish. Would that really worry you?
The government infrastructure spend is important in multiple ways. 60% of steel is consumed by the construction industry and about 25% to 30% of the steel consumption in construction comes from infra spend. When the government spends on infrastructure, it stimulates construction activity.
The spend on infrastructure also works well for the auto industry because a lot of automobiles are used -- whether it is heavy vehicles, commercial vehicles, material handling equipments and so on. It also stimulates the auto industry which consumes another 10-15% of the steel in the country.
The second part is it leads to greater efficiencies and lower costs, which hopefully helps the profitability of the private sector and for the private sector investments to come back, not only do we need demand, we also need profitable private sector companies because profitability gives you surplus funds to invest. In today’s scenario, when the cost of capital is quite high and liquidity is a bit tight, lenders are careful about who they lend to.
It is important for companies to have strong balance sheets and good profitability so that they have surplus cash flows and funds available to invest. In many ways, these are interdependent. I do not think one can act without the other. The starting point would be the government spending and private sector investments will surely follow.
India has traditionally been a consumption led economy and that is reflected in the fact that the steel consumption is traditionally grown below the GDP growth rate. In most developing countries, steel consumption is 1.2-1.3 times the GDP growth rate. Because India has largely been consumption led, over the last few years, we have started becoming more investment led both from the government side and hopefully that will lead to private investments coming into the system and that will help us. So that adjustment is being made. There will be a recalibration of the economy as we become more investment led growth which I think is good for a developing country as long as we keep the fiscal deficit under control.
How worried would you be about the trade war and its impact on India? We have already seen imported steel making a comeback here. What is your sense now going forward?
There are multiple nuances to it. The trade actions of Trump impacts Tata Steel in Europe because from Europe, we sell about a million tonnes of steel into the US. But it does not impact Tata Steel much in India. The steel industry in India is impacted because of the divergence of material which should have otherwise gone to the US, into markets where India could have been exporting. So, sometimes, there is an indirect impact of trade actions rather than direct impact. Countries like South Korea, Turkey who have traditionally sold a lot into the US are looking for alternate markets and that could be in South East Asia, Europe or India.
As it is, the biggest exporters into India are South Korea and Japan with whom we have FTAs. There are concerns there about the flow of material into India and 90% of the steel which comes into India are very ordinary grade. They are commercial grades and not really the high-end grades which everyone talks about. There is a concern that we will be impacted directly or indirectly by the US actions.
But as a country, as an economy there are also opportunities. There is a concern about trade flows. India as a large consuming market is better positioned than other countries who depend on exports. Of course, we need to export more. As a country, it is good for us to export more but fundamentally we have a large growing domestic market and we should play that card well, leverage that well to attract more investments into India rather than imports into India and create a globally competitive industry across sectors in India. That is a possibility.
India is very open as far as FDI is concerned. Even if you look at steel and mining, you can have 100% FDI. Not every country in the world allows that and that should encourage investments in India, create a competitive industry just like the auto industry has been created over the last 20-30 years in India and then build a scale in India. The domestic market allows you to build scale here and export globally when things have mellowed down much more than it is today.
Would you also be worried about the surge in iron ore prices being witnessed both domestically and globally? Also the fact that it is not being accompanied by simultaneous rise in steel prices?
The demand in China has been more robust than we had imagined. If we look at the last four months, both the demand and production in China have been in the 9% to 10% range which is very surprising for country which consumes more than 900 million tonnes of steel or about 900 million tonnes of steel so it has been much better than we had imagined.
Obviously, a lot of actions are being taken in China domestically to counter the impact of the trade actions by the Trump administration and that is probably getting reflected in greater consumption that we had anticipated. We normally look for how much steel China is exporting. Despite their production going up 10%, because their consumption has also gone up by about 10%, the exports stayed stable at around 5 million tonnes a month which to me is a level the world can live with because even before 2015, China was exporting about 4 to 5 million tonnes a month.
The problems happened in 2015 when they exports doubled to 10 million tonnes a month. We still have that 5 million level. The minute it crosses 5 and goes to 6 million tonne, the world should certainly get concerned that it could happen if China slows down more than it has today.
All the investments that we talked about have already been done or are ongoing, I do not think we are going to do anything major beyond what we have announced, at least for the next three, four years.
Basically, last year, we completed the Bhushan acquisition towards the end of last year and in the early part of this financial year, we completed the Usha Martin acquisition and we are midway through the Kalinganagar expansion.
With all these, with Bhushan Steel integration, Usha Martin integration and the Kalinganagar expansionm we will be at around 24-25 million tons over the next three, four years. Thereafter we will see how the market is, how our balance sheet is and decide between 2022 and 2025 what is it that we need to do.
Are there any inorganic opportunities particularly in long products which are typically smaller and easier to digest, which are coming our way and which we would be interested in? We are well positioned in flat products with three major sites in Jamshedpur, Kalinganagar and Angul which is a Bhushan facility. We have enough flat product capacity and we have the opportunity to build more flat product capacities in the existing sites. Long products is where we would like to get more capacities. Whether we do it through Brownfield expansion in Jamshedpur or through inorganic opportunities, that we may pursue beyond Usha Martin, we will take a call in the next couple of years, once we have settled down with the existing investments.
We also have an opportunity to expand Bhushan Steel in Angul beyond the five million tons which is the rated capacity and we will explore all those possibilities. I think the good thing for Tata Steel is we have multiple options -- greenfield and brownfield. Actually, not so much greenfield but brownfield. We will exercise those options when we get there.
In terms of numbers, as you know, we spent about Rs 35,000 crore acquiring Bhushan Steel. Usha Martin was in the Rs 4,000-4,500-crore range and the Kalinganagar expansion which includes the state of the art cold rolling mill is about Rs 23,000 crore which is an ongoing project.
What is the plan about European business?A big fear is the ability of these assets to stay self sufficient and self sustaining with no recourse to the Indian operations, with the resumption a new blast furnace and the upgradation will operations be sustainably profitable?
Sponsored by: ACRI (The Association of China Refractories Industry), Tangshan YinNaiLian E-Business Co., Ltd.
Copyright © 2005-2020 Refractories Window All Rights Reserved
Tel: +86-315-5918500 Fax: +86-315-5918828 Email: info@refwin.com
ICP经营许可证编号: 冀B2-20060049 ICP备案号: 冀ICP备17015545号