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Tata Steel reported a consolidated net loss of Rs 6,511 crore in the second quarter of 2023-24 hit by impairment charges and provision for restructuring, but the company does not expect any more one-time impact in the rest of the fiscal, Managing Director and Chief Executive Officer TV Narendran told Moneycontrol in an exclusive interview.
Narendran however remained non-committal when asked if the company would end the year in red given the losses in the first half.
The steelmaker expects India demand and margins to remain strong going ahead. In the UK, it is still working on its plan for Port Talbot to finalise the job cuts.
From Tata Steel’s future plans, debt reduction to pollution read the edited excerpts of the interview here:
Europe’s performance was expected to be weak in Q2 but the loss is significantly higher than what the street estimated. Shares have also reacted to the number. The most important thing people want to know is that is this the last of the impairment and restructuring provisions we will see.
We have undertaken all the impairments that we needed to do, and also factored in the restructuring costs; that’s why we reported loss in Q2. We thought it’s better for us to take the hit in this quarter so we know exactly what’s going to happen going forward. Operationally, it was a challenging quarter. India has been strong as far as demand growth is concerned. Pricing started picking up towards the end of the quarter. International prices continued to be weak.
In Europe, while the UK has always struggled in challenging markets, in the Netherlands, it had more to do with the blast furnace relining that we are going through. We were operating with just one blast furnace, which means only 60% of the production. The negative numbers in the Netherlands are unusual. I think operationally we were close to what most analysts thought we would deliver. The impairments were one-off, most people knew that we would take some impairment but didn’t know the amount.
So does that mean you don’t expect any further impairments in the rest of the year? And that the restructuring provisions that you have done, does that take care of the entire plan?
Yes, that’s the expectation. In the UK, we have now pretty much cleaned up the book.
You were expected to make an announcement about the future of Port Talbot and potential job losses, which are estimated at around 3,000 job cuts. There has been a delay and the lack of clarity has not gone down well. Would you like to elaborate on your plan?
There is some confusion about the delay. We were supposed to do a call with the media after the result on Nov 1, but we had to push it because by the time the results got uploaded, it was quite late. There was some expectation in the UK that we were going to do a press conference to announce job cuts, whereas we were doing a press conference to discuss Q2 results.
Things are a bit sensitive out there. Everyone knows that there will be job cuts. What is the amount of job cuts is what we are consulting with the unions. And that’s a discussion we are having with them. We are required to go through meaningful consultation. And that process is going on.
At the end of the consultation, we will have a very clear path ahead and defined timelines. But we need to get the unions on the same page.
Even if there was confusion on the announcement, can you give us a timeline as to when you expect to make some statement on that?
We have said there will be job losses. It would be unfair for us to give a specific number when we are in the middle of a consultation with the unions. There are expectations, which today have been shared with the unions. But we are obligated to go through that consultation process. But yes, it’s clear that if we have to restructure the business and run a new process route, there will be an impact on jobs. We don’t like it. But I think the objective is in some sense, to make sure that we have a sustainable business in the UK, we continue to make steel in the UK.
We use an electric arc furnace operation because we can leverage the scrap that is available in the UK. And we use as much of our workforce that we can use in the UK. We’ve committed a lot of money over the last decade or so to keep the steel-making activity in the UK alive. And I think this is the best chance that we have to create a sustainable future for the business.
India’s steel demand remained resilient despite seasonal rains while EU steel demand was subdued by the economic slowdown. How is the rest of the year looking for steel demand in Europe and India?
In India, the demand has been very strong. I don’t think I have seen a 10% growth in steel consumption in a long time. That’s because all engines are firing. Automotive has been strong for the last six to eight months, even two-wheelers, which have been weak have come back, which is also a reflection that the rural markets are picking up, because motorcycle sales, in some sense, indicate the strength or the weakness of the rural markets. Construction has been strong.
In fact, surprisingly so even during the monsoon months, maybe, as always cyclical during monsoon months, but not as bad as we’ve seen in the past. And we expect a lot of activity to pick up from now till the elections, because a lot of projects need to get completed, and so on and so forth. So the demand has been very strong in India. The pricing is a little bit more reflective of what’s happening in the international markets.
As far as Europe is concerned, this year is a bad year as far as demand is concerned. Auto has been okay, but most of the sectors are struggling. But I think next year, the World Steel Association forecast is that European demand should grow by about 3%.
What’s the outlook for price and realisation in the third quarter and for the rest of the fiscal year?
I think the guidance we’re giving on prices in India is a net realisation increase of about Rs 2200 per ton in Q3 over Q2 because that’s where we see the Indian market. Europe is going to be weaker. In Europe, particularly in the Netherlands, we have a lot of long-term contracts which will come up for negotiation. These will reflect the current prices which are lower than the prices a year ago. We will see price reductions in the UK and Netherlands, but you will also see coal consumption costs reducing in the UK and Netherlands. In India, the coal consumption costs will go up, because we have already consumed the low-cost code.
There will be margin expansion in India, to some extent. In the Netherlands, there will be margin expansion simply because the blast furnace will come back in operation towards the end of this month. But you will see a better quarter in Q4 in the Netherlands, which is closer to what we normally see in the Netherlands. So I do see things getting better in H2 compared to H1.
What’s the outlook on raw material prices, especially energy costs? Also, globally steelmakers are working towards securing coking coal, what’s your strategy?
As long as you use blast furnaces, you will need to use coking coal. In the UK, we are transitioning away from a blast furnace route to an electric arc furnace route. This means we will use scrap and electricity and if that electricity is green, then you’re even better off. In the Netherlands, the plan is to move from blast furnaces to gas-based steelmaking.
Eventually, when hydrogen is available in the Netherlands, we will transition from gas to hydrogen. In India, the challenge is that we don’t have much gas available in the eastern parts. Whether it’s the pipeline infrastructure or port infrastructure, a lot needs to be built.
So till such time, we are dependent on blast furnaces and using coking coal. But having said that, we are looking at whatever gas is available to reduce the CO2 footprint by using more gas than we traditionally do. We’re not making a process shift, but we are trying to see if we can inject gases wherever we can to reduce the use of coal.
Tata Steel has been talking to GAIL for gas supplies and infrastructure. Will this be done in FY24?
We’ve come to some sort of an understanding with GAIL. For the Jamshedpur plant, we should be able to get some gas. We will announce when we conclude the discussion. GAIL is also looking at supplying gas to Jamshedpur city. A lot of our future capacity is going to come up in at Kalinganagar, Neelachal and Meramandali, so we’re looking at overall gas availability in the east. I think we will be adding at least 100 million tons of capacity every decade in India and in eastern India over the next few decades. It’s important to have gas available so that we can switch from coal-based process routes to gas-based process routes in the future.
As for the arrangement with GAIL, there are a few loose ends to tie up. We hope to do it sooner than later so that we can move forward.
With the mounting losses so in H1FY24, would Tata Steel close FY24 in red?
I don’t want to give specific guidance. If not for this impairment, the numbers would have looked much better. But I think this impairment was something which was inevitable and we had to take it sooner than later. I expect the second half to be better than the first half. Let’s see if we can make up for the negative numbers that we have had in H1.
Q. You have an ambitious target of doubling India’s capacity. Does the loss impact that plan or that remains unchanged?
So I think just now as far as growth in India is concerned, our focus is on completing the Kalinganagar project which is at its final stages, so that that can translate into becoming a cash-generating unit in some sense of the term. We have the Ludhiana project of an electric arc furnace, which is a green process route, which should come up in two years. So these two projects are going on and I think we want to complete it as soon as possible. For new projects, we will obviously look at our balance sheet and decide when to pace it, and when to start it, because that’s the advantage of organic growth, you can pace it well.
We have the opportunity to double, like I said, we are already moving to 25 million tonnes with the Kalinganagar expansion. That means we have another 15 million tonnes which we can build in Kalinganagar, Neelachal and in Meramandali, but we are also conscious about what is the debt on our balance sheet and how we find the right balance.
So we will keep reviewing that and share with you the plans as we make them. But the opportunity is there, the intention is there. We just need to keep an eye on the debt as well.
With losses in the first two quarters, where do you stand on the plan to reduce debt by $1 billion in the fiscal year 2023-24?
I don’t think we will ever give up on the plan. Now, whether we are optimistic about achieving it, that’s a different matter. The intent is to have a healthy balance sheet and how do we balance our growth aspirations, with a healthy balance sheet. Yes, we’ve had a setback in Europe, it’s been worse than we thought. We can debate whether India could have generated more cash. But I think the intent is to see how we can have a good balance sheet and achieve our growth aspirations as well. And that’s what we’re working on.
Pollution is a serious issue in Mumbai, Delhi and other cities like Jamshedpur where the city was built around your plant. How do you see this issue evolving in terms of the pollution levels in bigger cities and in cities which have an industrial presence? What needs to be done in the short and long term to curb pollution?
For industrial plants, we are not limited by, but we are driven by the regulations and the regulatory environment gets tighter and tighter. Every time we go over the plan to expand the plant capacities, we are told that this is what the emission level should be and we comply. I can say that Jamshedpur’s production capacity of 10 million tonnes right now is emitting less than it was emitting when it was producing 5 million tonnes. That’s the kind of improvement that we made.
But we want to keep making improvements and many projects are continuing. In the next few years, you will see the emission levels in Jamshedpur will keep dropping. I sometimes feel we have much cleaner air in Jamshedpur than most of the other big cities in India, which don’t have a steel plant in the middle of the city. I am not saying we can’t do better, but I think we give our citizens a fairly clean environment.
As far as India is concerned, I think there are multiple sources– industrial plants, vehicles, construction activity, and in Delhi even stubble burning. There are multiple sources and one needs to act on all sources and see what is the best balance that we can get. The AQI levels across India, in multiple sites in India, are far higher than it is in global cities. I think we need to do a good job on that. I think many developing countries including China are already moving a lot in that direction and I think India is also moving in some sense in that direction.
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MC Interview: India steel demand is strong as all engines are firing, says Tata Steel MD – Moneycontrol
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