TV Narendran seems unfazed by the challenges faced by the domestic steel industry and, particularly, his company. He is optimistic about demand picking up in India, even as Tata Steel's 3milliontonne Kalinganagar project is getting ready for commissioning. In an interview to ET, he talks about China demolishing steel capacities, dumping of steel by foreign companies, the government's Make in India initiative as well as the company's efforts to remain a lowcost producer of steel.
Edited excerpts: Can Tata Steel retain its edge in cost competitiveness? Yes. Till December 2014, we were still the lowestcost steel producer in the world. The last one year, the Russian steel producers have become cheaper because the rouble has become cheaper from 30 to 68 and now is 75 (against the dollar). We are still in the top five of the world in terms of the cost of making hotrolled coil. But I agree, that the India business is going through a difficult time. However, even in the last (December) quarter, our underlying EBITDA was 17%. So, from that perspective, I think we have done well compared to the rest of the industry. At the same time, I've to admit we cannot be insulated from steel prices. For Indian steel producers, the cost of capital and price of steel have been a challenge... Yes.
That's the overhang. The industry overhang in some sense. The industry goes through cycles ... The challenge in the industry is how to ride the down cycle. In the upcycle, everyone looks good. It is always about those who survive the down cycle. During every down cycle, there is a shakeup. Like in the early 90s, everyone thought steel was a gold mine and in the late 90s, the cycle changed. Many got burnt, some survived and became stronger. The challenge this time is that things change, so dramatically, in such a short period of time. If you look at the 2008 crisis, to some extent Asia did not suffer as much as the western world because very quickly China began spending its way out of trouble. And so the crisis eased significantly within a 12month cycle. And demand never dropped. Demand continued to grow even when prices dropped. This time the demand in China is shrinking and the prices have dropped significantly in the 12month period and are not likely to shoot up as it did because China can't spend its way out of trouble. Are you seeing signs of stability returning to the steel industry or is it too early?
There are a few things I've heard in different forums including the World Economic Forum, from China commentators. It is that China is not as bad as people outside make it out to be. The twochild policy (in China) is going to have a positive impact. There's going to be 2 million kids to be born this year and this is the first year of the new fiveyear plan. Then one sees a huge commitment in China to shut down some steel capacity. They are going to start around Beijing, where 30% of the country's steel production is located. This is also done because of pollution. They (Chinese) are talking about demolishing capacities. The language seems stronger. There seems to be lot more intent, this time. Maybe the bottom has been reached. Even in December, steel prices in China started moving up. This is different.
Source: Economic Times