‘Tax on mining will make Indian ores less competitive’

The steel industry would like to forget 2015 in a hurry and gear for another challenging year ahead. Though raw material cost is coming down, steel prices are falling even faster triggered largely by cheaper imports. Profitability of steel companies has come under pressure with demand still languishing. Planned investments in infrastructure are delayed for various reasons. In this backdrop, TV Narendran, Managing Director, Tata Steel (India and South-East Asia), shared with BusinessLine his views on the year ahead. Excerpts:

How do you see 2016 shaping up for the steel industry?

The focus for 2016 should be to ensure a level playing field for the domestic industry, which is currently skewed towards imports. India needs to make sure there is fair play so that domestic competitiveness is not eroded. The steel industry needs to be nurtured by improving cost factors in logistics, regulatory and capital. India should assess the pros and cons of bilateral and multilateral trade agreements to strengthen domestic industries.

The Centre has made some changes in regulatory regime to make it more predictive and stable but more needs to done to ensure ease of doing business. Rules should be made simple and easy to implement at the State level.

Will the local levy and royalty make mining inefficient?

Commodity prices globally have come down drastically. Mining jurisdictions across the globe are re-working royalty regimes to make them more competitive. Since raw materials are at the first stage of the value chain it makes more sense to lower the mining levies and taxes in India. The increased tax burden such as hike in royalty rates last year and new DMF (district mineral fund) would make Indian ores less competitive compared to commodities traded across the globe.

Will the planned minimum import price solve the industry’s problems?

Different countries have imposed safeguard measures due to surging imports. The Indian government has also taken cognisance of the situation and has introduced measures to curb imports. But the effect of these measures so far has not been significant.

The deluge of imports continues to increase. India needs strict watch at the entry level along with tariff and non-tariff measures. Steel prices in India have dropped 40 per cent in the last 18 months wherein, globally it was down by about 30 per cent. One of the biggest challenges for the industry was dumping by steel- surplus countries such as China, Japan and Korea. It was further aggravated by weak Chinese currency which was devalued twice.

How is the new plant at Kalinganagar ramping up?

The largest single-location greenfield steel project in the country was dedicated to Odisha on November 18. The commissioning of the coke oven, hot strip mill and sinter plant have started. Tata Steel has a long-term view on India’s steel sector growth. The company has been contributing to the industrial growth of Eastern India for over 100 years and our Odisha project was conceived on similar lines.

Have you tied up iron ore and raw material required for the plant?

Iron ore for the plant will be primarily sourced from the domestic markets. For coking coal and fluxes, it would be mix of domestic and imported sources.

Will the new plant be able to compete with cheap imports?

Steel import was up almost 60 per cent so far in the current financial year. The sharp increase in imports and predatory pricing have impacted the profitability of Indian steel companies. Investment in infrastructure is expected to drive steel demand to 87.6 million tonnes (mt) in 2016 from 81.5 mt in 2015. We are confident of selling incremental volumes from Kalinganagar plant. Moreover, the product range from the new plant is wider and thicker compared to Jamshedpur unit. Though we are comfortable on selling the additional volumes, some help from government is needed to improve the cost of doing business and check dumping of steel in India.

Can Kalinganagar make up for the trouble in Europe and other markets?

The Odisha project is not to be linked to Europe or any other country. Indian and European steel industry have different dimensions in terms of demand and supply.

In Europe, steel demand is 20-25 per cent below the 2007 levels. While the demand is up by 3.2 per cent in the first eight months of 2015, the imports have increased by 16 per cent, leaving the domestic producers vulnerable.

Moreover, Europe’s concerns are amplified by high cost of energy, regulatory and compliance which could add up to 28-35 per cent of EBITDA. In India, there is incredible growth opportunity with low per capita consumption of steel and the Centre’s Make in India initiative. Infrastructure assets such as roads, railways, ports and airports account for 65 per cent of the steel consumption in India leaving tremendous room for growth.