Tata Steel Europe will see one of best years of EBITDA: Koushik Chatterjee

The floods in South India had an impact on construction activity, as have pollution curbs in the National Capital Region, said Chatterjee

Steel prices have corrected globally, more so in China. In a conversation, Tata Steel Executive Director and Chief Financial Officer, Koushik Chatterjee, tells Ishita Ayan Dutt that fundamentals remain unchanged and Europe, where the company has a manufacturing footprint, is in a strong phase. Edited excerpts:  

International steel prices have dropped from peak levels which is impacting sentiments in the domestic market. Are steel prices running out of steam?

The fundamentals remain unchanged. Infrastructure building is driving demand in the US and Europe and that has taken finished steel to raw material spreads in some products like plates to record levels like $1,000 tonne.

Then, there are supply constraints due to capacity rationalisation on account of environment policies in China and countries like Japan. They are not looking at the export market. These are structural changes and the overall trajectory remains the same.

In India, automotive demand during the festive season was much lower than expected. But there is an expectation that over the next couple of months, it will come back; retail is going to pick up.

The floods in South India had an impact on construction activity, as have pollution curbs in the National Capital Region. But these are event-related changes and once it settles down, demand will come back.

What is the debt reduction plan for FY22 and what kind of debt reduction has happened since the upturn in the steel cycle?

We have said that we will try our best to repeat what we did in the first half of the financial year (which is Rs 11,424 crore). In the last 18 months, we have taken out more than Rs 38,000 crore of debt till September and we want to keep strengthening our balance sheet as we go forward.

Tata Steel Europe recorded one of its best performances. What is the outlook?

This year, the spreads continue to be strong and are at multi-year highs. While Europe has its own challenges because of the semiconductor issue in the automotive sector, we are looking at alternative segments. At some point the issue will ease out.

But there are other segments like infrastructure and construction that are showing promise of sustained demand. The capacity utilisation in European steel industry is currently very high and the spreads have been at a multi-year high due to robust demand.

Structurally, this is a strong phase and Europe will be decarbonising faster than the rest of the world. So demand for metals should continue to be robust going forward. I think, Tata Steel Europe will see one of the best years of EBITDA on account of operating performance this year.

Will COP26 raise India Inc’s ESG quotient and what are Tata Steel’s goals?

COP26 was labelled as an important event from a global decarbonisation perspective. After 26 years of the annual conference of parties, we have a position where acknowledgement of the problem is no longer a debate. Identification of the path ahead is also kind of accepted, including the phasing down of fossil fuels.

But COP is also a balance between decarbonisation and just transition, especially for developing countries – bringing about equality or reducing inequality, providing social benefits and also looking at nature-positive actions.

It is certainly going to raise accountability and disclosures reporting on ESG parameters by companies across the world including India. The IFRS Foundation has set up an International Sustainability Standards Board which will define non-financial reporting. In Tata Steel, we have been one of the first companies to report performance on an integrated basis five years back.

We are working on a decarbonisation strategy both in Europe and in India. Europe is ahead because regulations are moving faster there and we are looking at a transition to low carbon configuration while maintaining competitiveness and sustainability of the business. That’s the path ahead for the next decade. In India, for every investment that we make we are looking very closely at carbon intensity.

Tata Steel BSL (formerly Bhushan Steel) and Tata Steel merger is now effective. What kind of cost savings are expected?

We have been actually working on virtual integration for some time. I see savings of Rs 1,000-Rs 1,500 crore per annum going forward on various fronts – from synergies in supply chain to raw material and distribution and organization simplification. We have taken out a lot of cost in the last three years and there will be much more.

After bidding conservatively in the last round of auctions, Tata Steel bagged Gandhalpada mine at a premium of 141 per cent. What makes it viable?

The mine is one of the largest in terms of reserves and scale is important. Second, it is adjacent to the existing mine that we got from the Bhushan Steel acquisition. So, we will have the opportunity to make it a large mining complex. Third, the ore is of high quality, which will have a huge impact on the operating cost of the plant.

Finally, it was a conscious way of looking at our growth on the steel side and the need for large reserves of iron ore. Therefore, synergistically, if we have to make a hub for the next couple of decades, this will become the mining hub for Tata Steel and we can build large infrastructure.