Tata Steel to tweak tenure for suppliers' contracts

Tata Steel will switch to quarterly contracts for raw material suppliers from the existing annual benchmark pricing system.

H M Nerurkar, managing director of Tata Steel, said the world would have to move to quarterly contracts. “There is no other option.”

He was echoing what Lakshmi Mittal told shareholders at the ArcelorMittal annual general meeting on Tuesday. “The company was mulling a switch in business model to quarterly contracts,” Mittal had told the gathering.

Of the total production of seven million tonnes at Tata Steel’s Jamshedpur unit, 30-35 per cent cater to the retail segment, where most of them are either on monthly contracts or of even less duration.

Nerurkar said although automotive supplies were on half-yearly contracts, it would soon switch to a quarterly system. Automotive accounts for about 17 per cent of the company’s long-term supply pacts.

The company has also told the railways that it would switch to quarterly contracts. “Till last year, supplies to the railways followed the annual benchmarking system but we have decided to change the system,” he said.

The decision to switch to quarterly contracts was a result of a dramatic change in pricing policies by raw material suppliers to cash in on the resurgent demand.

Nerurkar said the supplies were controlled by three or four players. Of the $200-billion iron ore industry, BHP Billiton, Rio Tinto and Brazil’s Vale control about two-thirds. Coking coal is controlled by BHP, Rio, Anglo, Anglo American and Xstrata.

Tata Steel’s India operations has 100 per cent iron ore and 50 per cent coking coal security, while Corus, which accounts for around 65 per cent of the group’s production capacity, has no captive mines.

Nerurkar said, some ore and coal would start flowing in from Canada and from mines in Mozambique from next year. The concern over raw material security stems from the surge in prices. Iron ore prices have increased 30 per cent since December 2009 to $143 a tonne, while coking coal has increased 16 per cent to $220 a tonne.

“The increase in raw material prices would get passed on to the consumers. However, it would have to be seen to what extent customers will be able to accept,” said Nerurkar.

Tata Steel among world’s 10 most admired firms Tata Steel has been ranked among the world’s top 10 “Most Admired Company” list rated by Fortune Magazine and the HayGroup. Israel Berman, managing director, Asia Pacific Affairs, HayGroup, gave the award for the Industry-Metal category. The rankings were based on many factors, including innovation, people management, use of corporate assets, financial soundness, long-term investment and global competitiveness. While receiving the award, Nerurkar, “This is just the beginning.”