Will maximise European facilities to meet market needs: Koushik Chatterjee

"Demand and supply dynamics and input cost are the key influencing factors on steel prices," said Chatterjee.

Russia and Ukraine are major exporters of steel and the ongoing war is expected to cause supply disruptions. In an interview, Tata Steel Executive Director and Chief Financial Officer, Koushik Chatterjee, tells Ishita Ayan Dutt that Europe will see a significant supply constraint and Tata Steel Europe is assessing the situation both from a market perspective as well as supply. 
Edited excerpts:

 

How is the Russia-Ukraine war going to impact steel trade? 

At a fundamental level, Russia and Ukraine are both steel exporting countries and based on 2021 volumes, almost about 45 million tonnes is exported on a combined basis. Of this, 15 million tonnes of annual combined exports goes to the EU. So, we will be seeing a significant supply constraint scenario in Europe out of this unfortunate situation. This will naturally be felt in steel prices in Europe.

On the raw material side, Russia is also an exporter of iron ore and pellet while Ukraine exports iron ore. So, Europe will witness an increase in iron ore prices and higher pellet premium. And then there is a larger basket for other commodities as well where the supply impact will be felt.

Can domestic producers including Tata Steel step up exports?

We are primarily a domestic producer with long standing customer relationships and a very large distributor network. Compared to the domestic volume, we export a much smaller volume. As you know, we have a material presence in Europe with our facilities in the Netherlands and UK. We will be working to maximise our European facilities to meet the market needs.

Steel companies globally including Indian steel mills have reportedly increased prices. Is this because of input cost pressure out of the war?

The demand and supply dynamics and input cost are the key influencing factors on steel prices. In recent times, input costs have increased very significantly especially coking coal which is currently at an all-time high with hard coking coal FOB Australia at $560 per tonne and iron ore around $150 per tonne. This will have an impact on consumption cost in the future quarters across the entire industry. With significant input cost inflation, supply constraints internationally and the improvement in the demand situation, international steel prices have increased. Indian prices are reflecting the same trend.  

What will be the impact of the war on Tata Steel Europe?

We are assessing the situation both from a market perspective as well as supply. Things are moving very fast and we are keeping a close watch on the situation.  
Does Tata Steel Europe export to the CIS?

No. A small quantity is supplied to Eastern Europe, but not to Russia or Ukraine. More importantly, there will be a deficit in Europe, so the EU mills will be more focused on meeting the domestic requirements where supply constraints will be felt.

Will the disruption caused by war impact your transition to gas-based direct reduced iron (DRI) that you were exploring in the Netherlands?

If the disruption is long and structural, then there may be a faster transition towards hydrogen compared to the gas-based process. But that is not established at this point because we don’t know what is the time horizon for this disruption and what impact it will have in the long term.  

Do you see the Indian government’s green hydrogen policy helping in the transition to “green” steel?

Public policy will play a very important role in the decarbonisation journey and the new hydrogen policy is certainly in the right direction. A lot more will have to be done especially in setting up public infrastructure.

Tata Steel has lined up a huge capacity expansion plan till 2030. What are you doing to ensure that it doesn’t increase carbon footprint and would it entail additional cost?

The key thing is to focus on reducing the intensity of CO2 emission and we announced our targets last year. We want to keep CO2 emission around 2 tonnes per tonne of steel by 2025 and 1.8 tonnes per tonne of steel by 2030.

India needs more steel and our capacity will increase to meet the requirements of the country. But we will continue to reduce the CO2 intensity for the marginal capacity of growth.  The carbon intensity graph should keep coming down. To achieve this, we are adopting the best of technologies and emission standards and also investing in innovation.

But is there a plan to move towards gas-based technology in India?

Yes, we are exploring and evaluating multiple options. There are two parts to our India strategy – one is to reduce carbon intensity which can be done by charging more scrap, using better quality raw materials and other operating initiatives. We have also initiated a pilot project for continuous injection of coal bed methane (CBM) in the blast furnace to reduce emissions. So in the existing process routes, there are opportunities to reduce the carbon footprint for which we are working on multiple initiatives.

Then there are structural strategic shifts like scrap-based electric arc furnaces (EAF) that we are looking to invest in. So we will grow in capacity but we will keep reducing our carbon intensity for the incremental steel we produce.

Even though India’s net zero target is 2070, do you have to gear up for the export market as carbon tax is under consideration in many geographies?

Steel is a foundational material for any economy and India is a growing country with its own need for steel. Hence, Indian steel capacity growth will always be focused on the domestic market. The carbon tax is essentially being proposed in the EU and proposed to be implemented in the next few years. They are actually doing two things – setting up the carbon border adjustment mechanism (CBAM) and EU countries are also allocating significant capital grants and subsidy schemes for capital investments and operating costs so that the transition costs are shared between all the relevant stakeholders i.e. the company, the customer and the government.

Is it becoming increasingly important to be mindful of technology and processes while raising funds?

It’s the other way round. If you are investing in a certain asset configuration, one has to be very focused on the environmental impact and hence the technology choice becomes critical. In the long term, the incumbent technology will actually determine the capital raising strategy, at least in the international market. It is becoming increasingly clear that providers of capital – be it equity or debt - are already carefully looking at the carbon journey of companies and the reporting and disclosure standards will look to capture that in a more stringent manner.