Tata Steel UK arm recovery tied to market conditions, not management

Tata Steel's top executives say Q3 prices will soften but higher volumes will offset the impact; Europe to benefit from import curbs, while UK turnaround may take longer

A day after Tata Steel’s net profit surged nearly fourfold, Managing Director and Chief Executive Officer T V Narendran and Executive Director and Chief Financial Officer Koushik Chatterjee discuss a range of issues with Ishita Ayan Dutt during a video interview. Edited excerpts:

 

Tata Steel’s profit jumped 272 per cent year-on-year. Steel prices have been weak in the domestic market. What’s the outlook for the third quarter (Q3)?

 

T V Narendran: Our guidance for prices in India is about ₹1,500 per tonne lower in Q3 compared to the second quarter (Q2). Pricing is driven by weak international markets — you can’t export your way out of the inventory challenge. We don’t have an inventory problem, but some of our peers do, and that’s putting pressure on prices.

 

While our price guidance is lower, we’ll have half a million tonnes more volume in India in Q3 than in Q2, thanks to the Kalinganagar ramp-up. So we’ll have a volume advantage.

 

What about Europe?

 

Narendran: In the Netherlands, we expect prices in Q3 to be about €35 per tonne lower than in Q2. However, coking coal prices and consumption will be $6–7 per tonne lower, which will offer some relief.

 

From the fourth quarter (Q4), we expect European prices to rise due to the impact of import duty restrictions, which have already begun to take effect. That should help us in our annual contract negotiations in November–December.

 

I’m less concerned about Europe and more about the UK, where there’s no comparable protective action from the government.

 

In the UK, earnings before interest, tax, depreciation, and amortisation (Ebitda) losses have widened. Does that mean the turnaround projected for 2025–26 could be delayed?

 

Narendran: In the UK, while losses in Q2 widened compared to Q1, they’re half of what they were in Q2 last year. Hopefully, in Q3–Q4, the losses will narrow further. But the turnaround may take a bit longer.

 

The actions we’ve taken — cost takeout and efficiency improvements — are on track, but market conditions are much worse than expected. We’re urging the UK government to take action similar to Europe’s and revise quotas. If that happens, the turnaround could be faster. For now, our internal measures alone aren’t enough to achieve positive Ebitda under current market conditions.

 

Does that mean UK operations will always depend on policy intervention to be sustainable?

 

Narendran: Under normal circumstances, the UK should have been Ebitda-positive and self-sufficient. But current steel prices aren’t sustainable without some form of protection built in — as we’re seeing in Europe, and to some extent, in India.

 

Given the current environment, is the 40-million-tonne (mt) capacity target for 2030–31 still achievable?

 

Narendran: As things stand, we’re already in the middle of several projects that will take us there. The immediate next one is Neelachal, which we’ll take up in the coming months. We have the option to start the next 5-mt phase at Kalinganagar and to expand Bhushan to 6.5 mt. Adding the Ludhiana project will get us reasonably close. However, we’ll pace expansion based on steel prices — focusing on margin enhancement rather than just volume growth.

 

Koushik Chatterjee: The profitability of growth is as important as its scale. The value proposition matters. The path to 40 mt isn’t a problem; we have enough levers to get there.

 

Between balance sheet, profitability, and growth — what’s the primary focus for Tata Steel?

 

Chatterjee: They’re not mutually exclusive. These are large, complex projects, and they take time. But with good execution, the cash-to-cash cycle supports the next project. The balance sheet is the guardrail that allows that phasing to happen.

 

Next year, the European Union’s (EU’s) Carbon Border Adjustment Mechanism (CBAM) and the revised tariff quota come into play. How will that affect your European operations?

 

Chatterjee: Positive — that’s the one word for it, at least for the Netherlands. CBAM is essentially a carbon actualisation process. In terms of emissions, our Netherlands plant is the second-lowest in the world, so we’ll have headroom over imports. As we continue to reduce our carbon footprint under CBAM, it should be margin-expansionary.

 

The UK’s CBAM is expected in 2027, but the government still has to go through consultations before finalising it. The more pressing issue for the UK government right now is to engage with the EU to ensure mutual understanding on quotas and tariffs as they did in 2021.