The recent sharp fall in iron ore prices may finally put a lid on the continuous rally in steel prices. However, the demand is expected to remain strong with global economies spending big time on infrastructure development. TV Narendran, Managing Director, Tata Steel, spoke to BusinessLine on the way forward. Excerpts:

How do you see steel demand?

Demand shrunk 14.8 per cent sequentially in the June quarter, largely due to lockdowns, Covid impact and diversion of oxygen from industrial application.

While steel plants had in-house oxygen supplies, many of our customers had to shut shop due to lack of oxygen for fabrication and welding.

Moreover, construction activities also slowed down. We expect that to pick up this quarter as auto is back. Overall, for the year, we expect steel consumption to go back to the pre-Covid level of 103 million tonnes from 88 mt logged last year

Oxygen diversion still continues?

Now, there is no restriction on the supply of liquid oxygen for industrial purposes. Medical oxygen requirement is very low.

At peak, Tata Steel had dispatched 1,200 tonnes a day, and now it is down to 50-60 tonnes a day.

There is enough capacity available and industrial activity is not being impacted.

Is the sharp increase in raw material a concern?

Coking coal went up by $80-90 a tonne to $220 in the last three months. It is vulnerable to events such as bad weather or some problem in Australia. Iron ore is far more liquid, but it is hovering around $200 a tonne.

It recently dropped down to $170, but given the fact that steel production continues to remain strong, iron ore should be in the $150-180 range. Coking coal should be in the price band of $200 to $230. These are the reasons for high steel prices.

In China, coking coal prices are at $330 to $340 a tonne as they are sourcing it from Russia and Mongolia rather than from Australia.

As long as Chinese companies are buying coal at $330 and iron ore at $170, there is no way they are going to drop steel prices like before.

Will this keep domestic prices high?

Domestic flat product prices have been stronger than long products. Secondary producers have 50 per cent of the long product production. Flat product prices are more international market-dependent. If you import steel into India it is 15-20 per cent expensive. It is not a commercially viable option. Demand in Indian markets was soft in the last couple of months and every steel company was exporting more.

Are you convinced with the turnaround in Tata Steel’s global operations?

We are well positioned now, structurally. We are rapidly deleveraging and have a lot of headroom to support growth. Today, India accounts for two-third of our business. The cash flow in India can take care of domestic growth. We need not borrow to support growth in India.

Of course, the European business was supported by steel prices, but last year it was challenging and we wanted to make it self-sufficient. We are in a much better position in Europe now. The Netherlands has always been self-sufficient, the UK is coming closer to that, and will be self-sufficient this year.

What is your next plan for Tata Steel Europe?

The transformation continues towards the goal of improving efficiency. The ability to survive in the down cycle ensures longevity in this industry. The company is driving efficiency, whether it is good or bad time. The separation of Tata Steel Europe into Tata Steel UK and Tata Steel Netherlands will sharpen focus. The strategy for Netherlands and UK will be different. The business there is in transition to a greener future.

We are in conversation with both the Dutch and British governments on the role they could play. I feel the way Europe is evolving would be the playbook for the rest of the steel industry in the world. This experience will come in handy when India also embarks on a net-zero journey. When India takes a position on decarbonising, Tata Steel will be better prepared.

Does the plan of exiting overseas operation still holds?

Our South-East Asia operation was always self-sufficient. It was not dependent on India for cash support, and Europe is also becoming like that. We are under no pressure to exit these businesses in a hurry. We wanted to consolidate European operations at that time because we thought that would be better for Europe.

The competition commission thought otherwise. Fine, we live with it. Structurally, the Dutch unit is the strongest in Europe. We will focus on making those units stronger so that we can get better value even if we are going to explore options.

Currently, we are not under pressure like we were two or three years back when we had to support those businesses, and the steel cycle was different.

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