Tata Steel managing director TV Narendran believes the company’s UK operations can be cash positive this year, despite the challenging market conditions facing the industry.
Speaking to Argus on the sidelines of the World Steel Association’s general assembly in Monterrey, Mexico, Narendran point blank denied talk that part of the UK’s upstream business is up for sale, despite the transformation plan currently underway at Port Talbot and Ijmuiden. Consultants Alvarez and Marsal is advising the UK business and Boston Consulting Group is advising Ijmuiden.
The best way for the European operations to take charge of their own destiny is by being cash positive, or cash neutral, so they are not reliant on multiple cash infusions from the Indian parent — as has been the case in recent years. Narendran said there is an expectation the European operations will be able to stand on their own feet in the next few years without financial support, which is a strain on the Indian business that is profitable and seeking growth opportunities.
The transformation programme is analysing costs on a granular level, and how the company can optimise spend and what should be prioritised or postponed. The production mix of IJmuiden and Port Talbot will not change, with the review focusing on what levers can be pulled to create efficiencies. Tata is regularly looking at its downstream businesses, which include the distribution unit, and what fits into the portfolio.
Narendran admitted India has been the price setter in the south-east Asian market in recent months, given the contraction in domestic demand and the wider economic issues. But he said Indian mills are profitable even at current prices given that they are primarily at the lower end of the cost curve, alongside CIS sellers, which have also been aggressive into south-east Asia recently.
With coking coal pries creeping up and iron ore still comparatively strong, Narendran said there is little scope for prices to fall further. He also believes measures taken by the Indian government will start to positively impact the steel market and wider economy in coming months. The reserve bank of India has reduced interest rates and the government has cut corporate tax rates, which could help the economy going forward — it grew by 5pc last quarter, down from typical growth rates of 7pc.
Should the domestic economy start to strengthen, Indian mils will turn their focus back towards home and away from exports, Narendran said.
On the issue of consolidation in Europe, Narendran said customers — who have informed the European Commission on whether competition would be impacted — have been short-term. They prefer a “weak” supplier basis so they can negotiate harder on prices. But for suppliers to invest in research and development, and breakthrough technologies, they need to have the requisite financial strength. Around 15 years ago, none of the grades now used in European automotive production existed, he said, noting this takes time and money to develop. A thinly-spread, ill capitalised and unprofitable base cannot afford to invest the time or capital.
He supported a mechanism to ensure carbon-efficient plants in Europe are protected, saying IJmuiden is one of the most efficient in the world. If such a plant pays a cost for carbon, as it does under the European emissions trading system, then it is only fair mills in other jurisdictions should pay a cost too — duty-free access to the European market for suppliers not paying such a cost only makes carbon efficient production less viable, in his view.
