You are here: Home » Companies » News
Business Standard

Coronavirus outbreak: Price recovery has taken a hit, says Tata Steel CEO

Steel prices that had touched a low of Rs 32,250 a tonne in the first week of November have been on the rebound since and are currently at around Rs 37,000 a tonne

Ishita Ayan Dutt  |  Kolkata 

T V Narendran
The only concern for the steel industry, T V Narendran explained was the inventory build-up in China, whether it would get consumed in the home market or be exported

The steel industry is hoping to reclaim peak prices by September on the back of a demand recovery. The only chink in the story could be a spiraling outbreak.

T V Narendran, managing director and chief executive officer, Tata Steel, one of India's largest steel companies, said that prices were being pushed up every month and would have continued if the virus scare was not there. "In March too we pushed up, but customers are pushing back," he said.

However, if the virus outbreak settles at this level, then by September prices should be fine, he said in response to when prices would move back to peak levels. Narendran was speaking on the sidelines CII's Annual Regional Meeting of the eastern region.

that had touched a low of Rs 32,250 a tonne in the first week of November have been on the rebound since and are currently at around Rs 37,000 a tonne. That, however, is still a long way off from last year's peak levels of Rs 46,000 a tonne.

The only concern for the steel industry, Narendran explained was the inventory build-up in China, whether it would get consumed in the home market or be exported. Hence, South East Asian market, where it mostly finds home, has reacted the most and prices have dropped the there.

"But if you look at Europe and India, have not dropped. It would have kept going up much faster which has slowed down. Also, South East Asia is more of a short-term reaction and China has also taken a number of steps to kickstart the local economy," he said.

"If you leave the virus out, we were seeing green shoots in the economy. Things were picking up in multiple areas, Narendran said.

The recovery is mostly from the construction sector which typically accounts for 60-62 per cent of steel end-use mix.

The commercial property segment has been strong and industrial buildings has also been reasonably strong, pointed out Narendran.

"But residential is the only area which is still very shaky and auto is still not showing any great signs of recovery," he said.

But there is hardly any inventory build-up in the industry unlike September-October. The recovery in the domestic market has prompted steel to cut exports.

By September, Narendran is expecting the demand from the auto segment to come back as well. By then, the response from the launch of BS VI cars would be clear.

Auto accounts for 15-16 per cent of steel end-use. But Narendran explained that it was a sentiment driver and had a multiplier effect. "Auto is the only sector which is still fragile. All other sectors were certainly showing signs of having the worst behind them," he said.

Overall, the economy is much better than last year, said Narendran, and the fourth quarter would be better than the third.

The next few weeks would however be crucial to understand the virus impact. The impact in India though has been much less than other geographies.

De-risking supply chain

The virus outbreak could also be an opportunity of India, said Narendran, as it accelerates the de-risking of supply chains that originate from China.

"The journey had started with the trade issues between the US and China and now with this virus, there would be even more reason for people not to be overdependent on one country. Many sectors like electronics and auto component will benefit as a consequence of this," he said.

Tata Steel, which sources consumables from China, had undertaken a risk assessment exercise and alternative markets like Turkey and Brazil were tapped. "We did an assessment of the critical items and placed alternate orders. The impact on cost is not significant enough to make and overall impact on total cost. For that particular item, it may be 10 per cent, but overall it could be one or two per cent," Narendran said, and reiterated that there was no risk of operations getting affected.

Some of items sourced are refractory, electrodes and manganese.

Tata Steel expansion

Next financial year, Tata Steel would start the pellet and cold rolling mill as part of Kalinganagar expansion plan. The focus will be on taking the capacity at Kalinganagar from three million tonnes to eight million tonnes.

At Tata Steel BSL, the production currently is 4.5-4.6 million tonnes and the run rate is five million tonnes. Eventually, the production would be ramped up to eight million tonnes but that would be part of 25-30 million tonnes capacity story, said Narendran.

The focus now will be on taking Kalinganagar from three million tonnes to eight million tonnes, which will take Tata Steel's capacity to 25 million tonnes, he added.

First Published: Sun, March 08 2020. 14:34 IST
RECOMMENDED FOR YOU