Tata Steel to gradually raise Kalinganagar output

Analysts say 0.5 mn tonne will get absorbed this year; pricing strategy important

Tata Steel, which will commission a 3 million tonne steel plant in Kalinganagar by December, plans to scale up its operations gradually.

Analysts said the company’s strategy of feeding the local market in phases was the only viable strategy till demand revived.

Tata Steel will start selling half a million tonnes of hot-rolled steel from the Kalinganagar plant in 2015-16 and add another million tonnes in 2016-17. The balance will come in subsequent years. Apart from the Kalinganagar unit, Tata Steel has 9.7 million tonnes capacity at Jamshedpur.

“Half a million tonnes additional production (this year) is not difficult for the market to absorb,” said Pritesh Jani, analyst with Religare Securities. “There is also a safeguard duty levied on this product, so local manufacturers should be able to sell their produce as imports decline,” he added.

The government has in the last few months taken several steps to protect the local steel industry from rising imports. Apart from import duties levied twice since April, the government has imposed a provisional 20 per cent safeguard duty on imports of hot-rolled coils for a period of 200 days.

According to the Joint Plant Committee, India's steel production in April-July 2015 was 31.15 million tonnes against demand for 26.34 million tonnes, highlighting the glut. Among integrated steel producers, Steel Authority of India’s production during the period was up a meagre 0.5 per cent year on year, while Tata Steel’s production grew by about 2 per cent.

“Being a brand, the Tatas may not find it difficult to sell the Kalinganagar steel but its price will be crucial as there is little demand,” said Kiran Mehta, director of the Bombay Iron Merchants’ Association. Tata Steel tended to sell at a slightly higher rate than others, he added.

“There is going to be stiff competition for Tata Steel, and the company will need to find a market for itself,” said Abhisar Jain, senior analyst with Centrum Brokerage.

“The market is not growing at the pace it should, and so Tata Steel is basically going to grab somebody else’s share,” said a Mumbai-based steel trader who is also a member of the Bombay Iron Merchants’ Association.

Some brokerages are hopeful of a demand revival from the construction and automobile industries after the central bank lowered the repo rate by half a percentage point last month.

Tata Steel did not respond to an emailed query regarding its plans for sale of Kalinganagar steel.

Tata Steel has a captive iron ore mine in Noamundi in Jharkhand and in Joda and Kalamati in Odisha.

“The positive factor for the plant is that the iron ore source is captive, and so the company will be able to make money as input costs will be low,” said Giriraj Daga, senior analyst with SKS Capital & Research.

Tata Steel has commenced coke production at Kalinganagar. The coke oven is a key component of a steel mill and coke produced there is charged with iron ore in the blast furnace to produce hot metal.

Since the imposition of the safeguard duty, steel producers have gained some pricing power as most of them have cancelled prior discounts and have also raised prices of flat products by Rs 500-1,000 per tonne.