TV Narendran, CEO & MD,
The steel sector is facing pressure from the demand side and experiencing weakness in price strength. How do you see the industry moving forward?
Narendran TV: The Indian sector will reflect the international market. Steel prices globally are seeing two trends – one as you said there has been pressure from the demand side resulting in lower prices but over the last few weeks we’ve also seen pressures on the cost side as coal prices have started to rise again, energy costs are up in Europe.
There have been a few climate events in Korea that have disrupted supply a bit. So cost pressures are pushing up steel prices in places like Europe. Capacity is also shutting down in Europe because energy costs are so high. It’s a bit of a mixed bag. In India, domestic demand is strong and we expect the second half of the year to follow the demand that usually follows the festival season.
Could there be price increases in the Indian sector as well because that’s the opinion of some people they put?
Prices have become very low and I don’t think many steel companies want to operate at this level or lower prices further. There is sufficient cost pressure for steel companies to increase steel prices.
The Indian government has imposed this export duty on steel. In your opinion, is it time for the government to abolish the export duty?
The government has assured us that this is a temporary measure and we are waiting to see that this temporary measure is repealed. India should be a big steel exporting country. Why does another country that has no iron ore export steel when India has all the iron ore it needs? India must boost steel exports and not shrink them.
But domestic inflation continues to be a concern as far as steel is concerned. Is that so?
Steel prices will depend on what happens in the global market. When steel prices went up in March and April, they went up because coal prices hit $600-650 and steel prices followed suit. Steel prices have started to fall because coal prices have started to fall.
So regardless of the export duty, steel prices will fluctuate depending on what happens in the international market. While it has provided comfort over the last few months, I don’t think it will provide us with permanent comfort. If globally, steel prices increase by $200, steel prices in India will also increase. We have to be connected to what is happening in the international market. Steel is a cyclical business. It has had its ups and downs and the steel industry has been the largest as far as private sector investment is concerned. We must encourage the steel sector to invest more and build more capacity.
For Tata Steel, what kind of increase in production do you see in this financial year? Do you have expansion plans?
This financial year, there’s not going to be that much of an increase in production because we’ve exhausted all of our factories. Maybe about half a million tonnes more than last year. What’s more important is that we keep growing. We spent around Rs 10,000 crore this year. We are undertaking a five million tonnes expansion at our Kalinganagar plant; several facilities will begin commissioning over the next few months.
Over the next two years we will increase this capacity by 5 million tons. Now, that’s the growth that’s going to happen. We have acquired Neelachal Ispat, which added another million tonnes. But it’s going to go into production over the next few months and we’ll see the impact next year.
Is that growth mostly on the domestic or global front?
90% of our sales are in the domestic market in India. Globally, we manufacture and sell in Europe and export to the US. We also manufacture and sell in Thailand and export a small amount to other countries in Southeast Asia.