It’s not the best of times for the steel industry with cheap imports and global overcapacity affecting pricing. Group Executive Director Koushik Chatterjee explains to Ishita Ayan Dutt why the company is adding capacity in uncertain times. Edited excerpts:
Is this the right time to commission new capacity when the utilisation in the domestic sector has been at 75-80 per cent levels for the past five years?
Tata Steel has a long-term view on India’s underlying demand and steel sector growth. The company has been contributing to the industrial growth of India for around 100 years and our Odisha project has been conceived and implemented to serve the country’s long-term needs through high-end and best-in-class steel products. The Kalinganagar plant is yet another milestone in our journey of sustainable and value accretive growth for Tata Steel and demonstrates our commitment to Odisha and is aligned to the ‘Make in India’ strategy.
It is not possible to perfectly time the market especially with greenfield projects that take a long time to implement. However, the new capacity at Kalinganagar will enhance the company’s portfolio by producing high-grade flat products for sectors like lifting & excavation, ship building, defence equipment, energy & power, infrastructure, etc.
We have already seeded the market and are confident we’ll be able to sell the volumes we produce. We also hope the government will be sensitive to the needs of the domestic industry and take steps to provide a level-playing field against unfairly priced imports that are coming into India. In the global cost curve, Indian steel industry is fairly competitive but when imports come in without regard to sustainable pricing structure capturing all the factors of production including capital costs, we have unfair and unsustainable trade, which must be acted upon by the national government.
How much of the raw material requirements would be met from captive sources? Would Tata Steel have to import iron ore for Kalinganagar?
For iron ore, the company continues to remain fully integrated and the entire iron ore requirement for the Kalinganagar project is proposed to be sourced from captive mines and we are ramping up our mining capacity to meet the incremental demand. However, in coal, our integration level would come down from the current levels as we would be sourcing externally the additional coal requirement for the Kalinganagar project.
With falling raw material prices, are captive linkages losing sheen given that the latest round of coal block auctions had to be called off due to low bids?
Tata Steel has been in mining for over a century now and as an institution, it has seen several commodity cycles. Over decades, we have invested in assets, infrastructure, capabilities and communities in our mining locations in Jharkhand and Odisha. We believe our mining practices are very efficient in spite of the fact that Indian ores are not the best in the world.
Our plant locations in Jamshedpur and Kalinganagar were also planned to be near the raw material sources to be logistically efficient and our operating practices on captive raw material usage have also been uniquely adapted to the available resources. So, as a long-term mining and steel player, we have an embedded strategic and structural view that captive sourcing especially in India creates long-term systemic value across cycles even if the current commodity cycle can potentially be lower and longer than the last one. We will always look for first quartile mining options in India and overseas for long-term sustenance.
As far as your question on coal auction is concerned, the auction of mineral resources is a unique model in India. I think it will be a hard time for auctions and if the current commodity cycle continues for a longer period, monetisation of value of resources cannot be the primary objective. Enhancing process transparency, development of resources efficiently and helping the domestic user industry to grow competitively would have to be the priority.
Source: Business Standard