The last calendar was a struggle for the Indian steel industry, with steel prices crashing 10% from INR 42,000 per tonne in January 2019 to INR 38,000 per tonne in August of that year. Auto sector bumps, slowed construction and real estate activities, coupled with the liquidity crunch and the burden of non-performing assets kept the industry in a bind. But, the upswing in demand and price is likely round the corner if it has not already arrived. Steel360 met up with Koushik Chatterjee, Executive Director & Chief Financial Officer, Tata Steel, for a discussion on the steel demand outlook, iron ore auctions, raw material price fundamentals and more. Excerpts from an edited interview:

Q. Steel prices have gone up, rather, they are correcting after 7-8 months. A growth of 6% is expected in steel demand. Do you feel the upward trend will hold going into the fourth quarter (Q4) and the first quarter (Q1) of the new fiscal? What is the outlook?

We will continue to look at the market, watch how the consumption graph increases based on the multiple efforts that the government has taken. It takes time to translate into growth and real demand. But I can say that in the last few weeks to one month, there has been a more positive trajectory.

Q. And do you feel that will sustain?

I would imagine so, because the drop in the inventory has been very significant. More importantly, the inventory levels in the system are low even globally. So, there is enough room to think this trend will sustain.

For a prolonged period, we have been in the bottom phase of the cycle and I would think that the up-cycle is beginning to start. I think it is starting to see more traction, but slowly.

Q. The auto, construction and real estate sectors were nothing to write home about in the past calendar. Do you feel consumption-demand will be bolstered by strong fundamentals?

Consumption had multiple effects because of several issues that played out-liquidity, NBFC issues etc. It is not one reason but a combination of factors some of them have been reset in terms of the liquidity provided to NBFCs, the kind of strengthening that is being done in terms of policies on real estate – the fund in real estates, etc. Thus, I am hopeful of a recovery in steel demand based on these measures.

Q. Do you see prices going up further from here?

That is what I meant to say. It is an interplay between a few factors – the demand-side pull, raw material prices and the inventory.

Q. How do you think coking coal and iron ore prices would pan out, considering the fundamentals of the auctions for the latter, especially?

We are entering the season of coking coal in Australia when it is prone to natural disruptions. So, we have to see whether anything plays out this year. Last year, it played out much later. I do not know about this year – nobody can predict natural calamities. But, I think, coking coal prices will be range-bound.

However, iron ore prices have been holding up for a much longer period than we thought they would, compared to the steel prices. But coking coal prices will be a key determinant.

Q. Where iron ore is concerned, is there need for a relook at India’s iron ore policy? Around 12 MnT get imported, effecting a drain on foreign exchange while an even higher corpus of more than 16 MnT get exported…
In India, fundamentally, iron ore is used for steel-making, both from merchant miners and by captive users. As we know, a new auction policy is being played out and this will hopefully increase the availability of domestic iron ore which would be important for the domestic steel industry.

So, I would say, the auctions are a part of the revisiting of the country’s iron ore policy.

Q. Do you think the mineral auctions could lead to cartelisation? Around 50 MnT of supply is likely to be impacted because of the impending auctions as the mines are likely to be acquired by captive steel players?

It is an open auction and it is a royalty-based auction. Whosoever has a long-term strategy of being a major miner, either from a captive point of view or commercial point of view, needs to participate. Therefore, it is not upfront capital-heavy. One certainly has to have a long-term view on the sector to switch in and out. And I think that is more important.

Q. Even if RCEP didn’t happen, the free trade agreements are still there…

Some FTAs have hurt in the past and continue to do so. We hope the government will look at it as an overall basket and explore what would be the alternate trade arrangement of not going into RCEP and the existing FTAs, because these were possibly valid at a certain point in time. There is a necessity to take a relook at these agreements from a fresh perspective. They have a term and will have to run their course.

Q. If you look back at 2019, what were the enablers and challenges?

Challenges were many. We are in the midst of a global vulnerability, which emanated out of the trade tensions between some very major economies, which has had a collateral impact on the rest of the world that also threw back into India. India had its own issues in terms of the banking and liquidity problems.

However, initiatives that the government has taken in recent times – I would not single out one but refer in general to the basket of initiatives – and I am sure some more will keep coming as the ease and cost of doing business become more conducive. If the cost and ease of doing business are the primary focus areas of the government – this is a continuous process – and as the industry also takes steps to increasingly become more competitive, it will become more robust. And, with the recent consolidation out of IBC, it will become even stronger. Therefore, we are on a positive path, although we will keep having these periods of volatility because steel is a commodity.

Q. Again, since you mention IBC, do you feel that here too the steel landscape will change, leading to cartelisation?

No. I don’t think cartelisation is an issue here because there is a very strong regulatory framework in place. India has progressed significantly on that issue. The Competition Council of India (CCI) is very watchful. I also think the players will be very disciplined. I am not worried about that aspect.

Steel is a very capital-intensive, long-term investment industry. You cannot have players in this space who do not have deep pockets or who don’t have a long-term view of the sector.

Q. Tata Steel did a restructuring of its capex. Going into the new fiscal, what are the plans with regard to investments?

­The current expansion work at Kalinganagar by another 5 MnT to take it to 8 MnT is well underway and that is going to continue. We are calibrating based on how the market is moving. But a fair bit of enabling work has been done. At present, we are focused on our rolling mill complex at Kalinganagar and the pellet plant. The cold rolling mill will improve the product profile. Thereafter, there are phases to this project over the next couple of years.

Q. What about Tata Steel’s current debt position?

­That is an enterprise strategy to deleverage. That is why we are looking at both internal and external levers to continuously reduce debt and that will continue. We have a debt of about INR 1 lakh crore and the debt reduction is an ongoing process.