Amid rising imports, steel prices have hit a three-year low. Hot rolled coils prices have dropped to ₹51,000 a tonne from a peak of ₹76,000 a tonne in April 2022. while the cold rolled coils are traded at ₹58,200 a tonne compared to ₹86,300 a tonne. Imports in the first quarter of this fiscal have surged by 68 per cent to 1.93 mt from 1.15 mt in the same period last year. The drop in prices comes at a time when steel companies have committed huge capex. TV Narendran, Managing Director, Tata Steel spoke to businessline on the way forward. Excerpts:
How do you see overall demand for steel?
This quarter is seasonally weak due to the monsoon slowing down construction activities. Usually, October to March is the best time for construction. We are quite comfortable with the demand in India. The problem has been the international markets, which have been flooded with Chinese steel and some of it is coming into India. As a consequence, exports are not a great option for any Indian producer today, because international prices are so low, it does not make sense.
How do you see steel prices?
It all depends on Chinese exports. We are waiting to see if Chinese exports decrease in the second half of the year. If international prices stabilise then exports become an option. If China brings down its exports to 60 million tonnes a year like it was doing one-and-half years back then steel prices will be closer to $600. If it touches that level, Tata Steel can make ₹18,000 per tonne. Now, global steel prices are at $490 a tonne.
Why aren’t Indian steel companies be as competitive as China?
The cost of doing business in India is very high. Even though the government has done a lot, the effective tax rate on mining in India is one of the highest in the world because of royalties and DMF (district mineral foundation) and other cess. If you tax the raw material so much, there is not much left to invest in downstream. The natural advantage of having our own raw material is lost because, by the time raw material reaches the factory, it is already at a higher cost. We need to think about these issues. It is a bit like an inverted customs duty.
How will you use the ₹175 crore contribution to electoral trust?
The Tata Group has an electoral trust to which all the Tata companies contribute, and these funds are distributed to the political parties based on the number of seats they have. This system has been in place for the last 20 years. Depending on a pre-determined formula each Tata company including TCS and Tata Motors would have contributed to the Trust. So every political party with a certain minimum percentage of seats and votes have to apply. Allocations are made without any political likes or dislikes. This is just for the Lok Sabha elections and not for State elections.
Will you stick to the $1 billion debt repayment target?
When we set that target four years ago, we had a net debt of ₹1.04 lakh crore. We reduced it to ₹52,000 crore and it went up to ₹78,000 crore, but currently, it is ₹82,000 crore. It is already a debt reduction of $3 billion. The debt hit ₹1.04 lakh crore after we acquired Bhushan Steel and invested ₹35,000 crore in it. The debt was repaid after the Bhushan steel turnaround. Similarly, we acquired Neelachal Ispat and spent ₹12,000 crore on it. The plant was shut for three years and it has now turned profitable. Neelachal will also be merged in some time. We have not met the $1 billion repayment target in the last two years and this year also we will not meet it. The challenge in a growth market is you cannot have a net debt number, at the cost of growth.
How do you see the Supreme Court ruling that States have the rights to levy tax on mining?
Let us awaitthe final judgment. I’m sure the government will also be thinking through what it needs to do to the MMDR Act which was brought in because States were not getting enough revenue from mine allocations. The MMDR Act and auctions have significantly increased States’ revenue . Royalty income is four times higher than before. There is enough money now going to the States. They will have to look at it more holistically. Otherwise, an increase in mining cost will impact multiple industries, not just steel, but also power, aluminium and cement. It will have a cascading effect in the economy. So I think that is a call the government will take.