What is your view on capex, given the current challenges facing the industry?
The guidance was for ₹12,000 crore, and we stick by that. We are not cutting that because it is for India and Kalinganagar expansions. We have announced that we will double our India capacity during this decade. Of course, we will keep reviewing it. In the last two years, we have strengthened our balance sheet; so, the rising interest rate is not much of a concern. We have repaid a lot of foreign debt; so, the rupee weakening is not going to have much impact. We now have more organic than inorganic growth plans, which means more brownfield expansions where we can adjust the pace as per need and manage our pace of growth also. As of now, there is no change in capex plans; we are quite bullish on prospects for steel in India. Even now, underlying demand is quite good, and we continue with our guidance.
Will you be able to recover market share once export duty goes away?
China’s rise in exports in May-June was quite temporary. In my view, it was more in response to the disruption due to covid shutdowns. But otherwise, China’s stated goal is to reduce exports and reduce its carbon footprint. Also, at today’s steel prices, Chinese companies are not making money because of high coal prices. Chinese companies, in fact, have started losing money at these prices. I expect production cuts, or they will wait for demand to improve in their domestic markets.
Second, while the whole point of export duty was to control steel prices, India should promote exports. China, Japan, Korea, etc., import raw materials and export steel, so why should India, which has iron ore reserves, not export steel.
Also, steel plants are set up in far away parts, and they create jobs. These are things to be encouraged. When we are in a very good competitive position to export steel, why should we only be dependent on domestic demand? Cost advantage and scale advantage are there.
Your European business delivered a positive surprise last quarter. Will it sustain? Will the transition to green weigh on the finances?
European performance will do better than in the past. European business has various durations (three months, six months, and one-year long-term contracts). This quarter saw benefits from all types of contracts. We have been focussing on operational stability, and the spread in Europe has increased and are better than long-term averages. The higher costs and capex to be incurred on going green will also mean the spreads are likely to be strong. It should help deliver better performance because of internal as well as external measures.
Green is inevitable in Europe, but there is also a clear policy road map and infrastructure road map; it’s a very well coordinated effort, and governments are working with the industry in a coordinated manner.
What’s the update on government support for the UK plant?
We submitted proposals around two years back and are waiting for the new government to be formed. We have got a lease of life because the spread has been supportive; so, if the cash flow remains supportive, we will keep running a business. But there are some assets that will see the end of life in the next two to three years. So, either you will have to shut them down or reinvest to run them. The business does not generate that much cash flow, and then we need to transition to green also. So, we have submitted the proposal to the government.
Any possibility of value unlocking in Tata Steel?
There could be possibilities. We are investing in new materials businesses, etc., but we want to nurture them first and take them to a higher level. Somebody also asked me if you separate out businesses, your multiples can double. But right now, our focus is on growing these businesses to a different scale.
Is there any risk of debt increasing in the current situation for steel makers now?
If you look at from the 1990s, every down cycle, some manufacturers have got knocked out. But now, we have reached a stage where there are very few players. Each of us is much stronger than before. I don’t see that sort of situation, though there could be some churn in the long products segment. The smaller players in this are more fragile. The second area where there could be disruption depends on what government decides about public sector steel companies.
In the domestic market, do you expect the government to be the largest spender, or are you expecting private capex to pick up?
India traditionally has been consumption-led growth. A good welcome change is a lot of focus is now on infrastructure, and India can have infrastructure investment-led growth like other countries. So, we will rely a lot on government-led growth.
Private sector investment is coming back in supply chains, electronic manufacturing, etc. Portfolio outflow has been offset by private investment inflows, which is a positive.
What’s your view on the commodity cycle?
I expect steel prices in the next decade to be higher than what they were in the last decade. The average for the last decade is around $600 a tonne. In 2015 we saw prices near $350. Today at $600, we feel it is really low. There will be volatility in steel prices but in a higher range.
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