BL Interview. India’s steel demand expected to grow close to GDP rates: Tata Steel MD

In India, I think demand largely continues to be strong. The only part which looked a bit fragile was the rural demand over the last 6-8 months. The urban demand came back up in some sense because automotive was quite strong and the automotive industry has gone back to pre-Covid levels. Commercial vehicles, the most steel- intensive part of automotive demand, are back on track. The part of automobile demand that looks a bit fragile is motorcycles, which is more reflective of rural demand.

Construction is reasonably strong, but has not been as strong as we thought it would be. We thought after the festival season when the migrant workers are available, it will bounce back, but the pick-up is slow. It will start looking up due to a strong start in this quarter.

The overall outlook is positive, with the Budget and the kind of money being kept aside for infrastructure. If you look at oil and gas, water pipelines, supply chains and warehousing, all are seeing strong steel demand. Overall, India’s demand is expected to grow close to GDP growth rates.

The economic landscape in Europe is not as strong as in India. Demand is not so great and prices are down while cost is increasing. The net realisation value of inventory has decreased in Europe as the raw materials used were of high cost. Moreover, we had to make some adjustments to the pension funds. We are trying to shift the pension funds to insurance to protect us over the long term and 60 per cent of the funds have already gone to the insurance companies. And when the pension funds are moved to the insurance company, the surplus carries with it. So, a large part of the loss was due to pension fund adjustment.

The biggest relevant event as far as steel prices are concerned is the opening up of China in early December. Since then, almost all commodity prices, including steel, copper and coal have gone up. Oil is still relatively stable. With steel prices going up, there will be margin expansion and our volumes will also grow because the Neelachal plant is now running at full capacity. So, I think India is not the challenge.

The margin will expand because steel prices are also going up. We will have coal $10 lower than the last quarter’s price on a consumption basis. However, coal prices are likely to go up next quarter, but expects steel to stay firm. So, margin expansion will continue, and volumes are also growing in India.

In Europe, we are expecting the demand to pick up this year. Last year, it was hit by high energy and gas costs. There was uncertainty on the Ukraine war. The demand had dropped off more than expected. But this year, energy and gas costs have stabilised. If China opens up a bit more, Europe stands to benefit because a lot of European economies, like Germany and Italy, export a lot to China. I expect this year to be better for Europe than the previous year.

We had set a capex of ₹12,000 to ₹13,000 crore for FY23 and it would be in the same range for next year. Most fresh borrowing will be restricted for refinancing of loans maturing. We will focus on brownfield expansion and stabilising operations at the recently acquired assets than looking for fresh acquisitions.

It will obviously impact export-oriented sectors. However, most Indian companies are dependent on domestic demand. Honestly, while there are talks of recession, but unemployment is still very low, even in the US. However, India cannot be insulated from global macro-economic events. But, as long as India’s growth is strong, the domestic companies’ prospects look good.

Not really. I feel that interest rates are close to peaking. Domestic demand will be driven more by the government in expenditure on infrastructure. And, as we heard in the Budget every year for the last three years, they have increased it by 30 per cent. This year, they have also increased spending on the Railways.