See multiple reasons for rural economy to recover faster than urban: TV Narendran, CEO and MD, Tata Steel

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July 1, 2020 12:55 AM

Capacity in Europe was always at around 70% because Europe did not have complete lockdown like we had in India, and we are operating at similar levels across Europe.

We have seen the monsoon has been good and so has the harvest. We have seen the monsoon has been good and so has the harvest. (Representative image)

Tata Steel is gradually ramping up capacities as it sees demand coming back, especially in the rural economy in India. TV Narendran, CEO and managing director of Tata Steel, tells Shubhra Tandon that demand for ‘boycott China’ is unlikely to impact the steel industry much, while the company hopes to sell its Southeast Asia business in the current financial year. It is also in active discussions with governments in Europe seeking support for the business in the Netherlands and the UK, which it intends to make cash neutral if not cash positive. Edited Excerpts:

How have the capacities around your global operations as well as India been and how are they ramping up now?
Capacity in Europe was always at around 70% because Europe did not have complete lockdown like we had in India, and we are operating at similar levels across Europe. India, because of the lockdown, and all our customers having to close shop, we brought it down to 50% production volumes by April, May was at 60%, June is at 80% and we will be 100% from July.

What is the outlook on steel prices and raw material prices?
Iron ore and coal prices are holding up, so overall raw material prices will provide support and steel prices cannot drop much below the current levels. In terms of other factors, demand in China is quite strong. There were concerns that post-pandemic China will be exporting a lot more steel than they did last year but it has been the reverse, China is exporting less steel than last year. So China has kept the demand-supply balance in Asia and India is also exporting steel into China. Steel prices have been helped by both cost pressures and demand upside in China. In India, we did not transact much till the middle of May, this quarter prices slipped a little bit simply because of the fact that inventories are build up both at our customer end and at our end as an industry. But going forward, given the trends in the international market and with the fact that input costs are going to be strong, I do not expect steel prices in India to drop.

Where do you see demand coming from in India in FY21?
We see multiple reasons for the rural economy to recover faster than the urban economy. For instance, tractors are pretty much at pre-Covid levels. We have seen the monsoon has been good and so has the harvest. Labour is available and now the government is also focusing on rural infrastructure. The urban economy is more dependent on industries like auto, etc, which will take a couple of quarters to come back. I also see sectors linked to government expenditure doing quite well — the oil & gas sector because of oil & gas pipelines being laid. I see demand in the pipes business because of the government’s focus on water supply for all. I see the railways, which has traditionally over the last few years been spending significant amounts on upgrading their rolling stock as well as railway lines.

Given the uncertainty, how prolonged does the recovery looks like?
The recovery in India could start getting to pre-Covid levels in Q3 or Q4, but this is assuming we don’t go into complete lockdowns as we did in April and May.

What is the plan on European and Southeast Asia businesses?
Southeast Asia is held for sale and we certainly want to complete it this year. Multiple conversations are going on, some of them are in pretty advanced stages, particularly within China. Subsequently, we have conversations with another group which did not go through, now we are in conversation with the third interested party. In Europe our focus will be to overhaul the business at least as much as to be cash neutral if not cash positive. There is a transformation programme going on in both the Netherlands and the UK. In the Netherlands we are slowly coming back from the operating performance point of view. We are obviously talking to the governments to see what support we can get. We have sought support from the government in the Netherlands and the UK. Some support has already come in terms of incentives that we have availed. But particularly in the UK we are in discussions with the government to see how we can get more long term strategic support.

How will the demand for ‘boycott China’ impact steel industry in India?
Currently, we sell more steel into China than buy from China, at least at this point in time. However, we as other steel companies from India will be buying lot of consumables and capital equipments. But obviously we will go with what the government’s guidance and policy and whatever is right for the country is what we will do.

If tariffs are increased on goods and components imported from China, do you see that impacting supplies or prices?
Not so much. From Tata Steel’s point of view less than 5% of our cost base is imported from China. However, it will lead to some challenge because for some consumables we are completely dependent on China, so we may take sometime to find alternative sources.

Given the situation with China, do you foresee increase in demand from industries like auto, capital goods and consumer durables coming in the next few months?
Maybe not in the next few months but certainly in the next few years, because I think with the government’s focus on ‘Make in India’, I expect more and more consumer durables and many other steel-consuming items to be produced in India, which maybe being imported from China.

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