'Chance to get Tata Steel Netherlands back to being a benchmark in Europe'

Tata Steel recently announced a major transformation programme at its Netherlands operation that is expected to impact 1,600 jobs. In a video interview, Koushik Chatterjee, executive director and chief financial officer, Tata Steel, discusses with Ishita Ayan Dutt a wide range of issues – from the genesis of the transformation programme to safeguard duty on steel in the domestic market and the India story which is expected to get stronger in a volatile world. Edited excerpts:

 

Tata Steel’s Netherlands operations have always been self-sustaining in contrast to the UK operations. But it appears to have slipped lately, why?

 

The Netherlands operation is structurally one of the most competitive assets in the steel industry across peers in Europe. Its carbon emission is at a benchmark level and it has a rich operating product mix catering to the auto, engineering, tinplate sectors.

 

But when the Ukraine war broke out, the inflation impact on the costs like gas and energy and labour became visible and the regulatory cost increased on multiple fronts. When cost increases, it obviously starts eroding margins. So, we had to go back to the drawing board to review costs and raise the efficiency bars. We also did benchmarking across all our sites, including India.

 

In a world where there are a lot of vulnerabilities due to external impact, we need to ensure that we raise the profitability levels in that part of the world. That's the genesis of the transformation programme.

 

Have you started implementing the programme?

 

We have started on the cost takeout initiatives. But for anything relating to people, we have to consult the Central Works Council (CWC). That requires a deeper engagement.

 

There is an opportunity to enhance the profitability of Tata Steel Netherlands and get it back to being a benchmark in the steel world, especially in the European context. The transformation programme is a bottom-up exercise and we will go relentlessly on costs and improving efficiencies.

 

The external scenario currently is volatile. Was that the trigger for restructuring?

 

In the last 18 months, raw material prices softened, but steel prices dropped much more sharply. In the circumstances, it becomes critical to look at the controllable costs and internal operational indicators.

 

On the commercial side, one has to keep improving the product mix, look at efficiency of raw materials and all cost heads that one can control to ensure that the spread that got squeezed due to the market is offset by the internal cost. It's effectively a response to the situation and that we will be focused on continuing to improve.

 

At Tata Steel, the improvement journey in India has not stopped since 1995 when it was first launched. It’s not always externally evident due to cost inflation and external counterbalance but key operating parameters like coke rates and other operating KPIs (key performance indicators) are always improved upon year-on-year. Similarly, it has to become a way of life in the Netherlands, the UK and everywhere else.

 

Did the tariff war have a bearing while deciding on restructuring?

 

The trigger was steel price trend and market impact, which was at a multi-year low. Each month became more challenging than the previous month.

 

The transformation programme in the Netherlands is expected to translate into cost savings in excess of 500 million euros. How much of it would be on account of the reduction in workforce?

 

It would be about 25 per cent of the structural improvements.

 

The impact on jobs in the Netherlands has not gone down well with the unions. How confident are you of pushing this through?

 

The engagement on that is happening in the Netherlands. Our engagements with all our stakeholders are continuous and extensive. They are aware of the difficulties faced in the current environment and we are committed to work with the CWC for a better and sustainable future for Tata Steel Netherlands.

 

I hope everyone who has a direct or indirect stake in Tata Steel Netherland’s future understands and appreciates that these structural measures and changes are necessary to be fit for the course. This is a very important part of the restoration programme on competitiveness.

 

The transition in the UK is on and you are driving cost-saving initiatives in the Netherlands. How do you see European operations shaping up in the next two to three years?

 

The Netherlands business will be focusing very sharply on internal efficiencies. The transformation programme covers all areas of the business. In the UK, we have already started investing on the EAF (electric arc furnace) project and taking out significant legacy costs. Both businesses in Europe are working on cost, efficiency and product mix levers so that we are in the zone of profitability which kind of demonstrates the efficiency of the underlying business.

 

Given the global scenario, how important is the proposed safeguard duty on steel imports into India?

 

It will continue to be important because you would never want unfairly priced imports coming into the country. That has been the basic premise of the safeguard petition from the industry. It is important for the domestic industry to be strong to face competition, but on a fair basis. For the sake of India’s future national sovereignty on a foundational sector like steel, the Indian steel industry requires robust policy support on trade and investments.

 

Will the current uncertainty impact your growth plans?

 

The India story is a multi-decadal growth narrative. We need to continue to deploy efficient capital, undertake a very tight capital execution and ensure that we are able to meet the growing customer requirements to capture the premium from the market. This will define the growth path for the next decade. Changes in global trade policy will keep happening, but I don’t see any change in the India growth story. If at all, it will only get stronger and robust in a volatile multipolar world.