Despite Covid-19 pandemic, Tata Steel bullish on FY22 demand in India

Globally, steel prices are expected to stay firm, as China may not export large volumes owing to better balance in its domestic market

Even though the Covid-19 outbreak in 2020 brought the global economy to a near standstill, Tata Steel, the country’s oldest steel producer, is optimistic about the demand for steel in India in 2021.

“We are seeing an inflow of funds from across sectors and an uptick in the overall consumption. The government’s efforts of improving infrastructure, coupled with the ‘Atma Nirbhar Bharat’ policy and production-linked initiative (PLI), are expected to further boost this inflow. Alongside, the government’s focus on rural infrastructure projects will also give an impetus to steel demand,” T V Narendran, MD and CEO of Tata Steel, said on Wednesday via a company statement.

During the peak period of the pandemic in early 2020, Tata Steel managed to navigate the business situation with strong financial discipline and cash flow management. “We believe that the steel demand in the country should grow at least at the rate of GDP growth or higher in FY22,” said Narendran.

Typically, this is the trend in a developing country, though, traditionally in India, steel demand has been lower than the GDP growth rate.

“We are optimistic about the overall demand for steel, and hence, the performance of the steel industry and Tata Steel,” he added.

Globally, steel prices are expected to stay firm, as China may not export large volumes owing to a better balance in its domestic market. There is no other significant exporter in the world market.

In terms of performance of raw material prices, Tata Steel said iron ore prices have risen sharply, primarily because of China’s recovery. Coking coal prices, on the other hand, have softened because of the geopolitical issues between China and Australia. Consequently, more coal is available from Australia in the world market, and India being a big importer of coal, is witnessing softening of prices.

In the domestic market, shortage of iron ore has led to increase in prices of the raw material, in turn, pushing up prices of steel in the domestic market. 
 

However, most primary domestic steel producers such as Tata Steel, JSW Steel and Jindal Steel & Power remain insulated from this price fluctuation as the companies have captive source of ore in the domestic market.

“Overall, the demand-supply situation favours steel producers with strong international prices. We are certainly back to where we were before the pandemic and we expect the trend to continue through FY22. The pandemic, however, is not behind us yet and we cannot let our guard down,” said Narendran.

As part of its cash conservation efforts, Tata Steel focused on safety and health-related capital expenditure (capex) along with sustenance capex over growth-related capex during the pandemic.