Tata Steel reported doubling of profit in Q4FY25. Koushik Chatterjee, executive director and CFO of the company, shares with Sambit Saha of The Telegraph the company’s plans to cut conversion cost, be future ready post auction of legacy iron ore mines and a ₹15,000-crore capex plan. Chatterjee says the UK division should break even in FY26 and that industry is keeping a close watch if the 12 per cent safeguard duty is enough to stave off the deluge of Chinese imports.
We are in the beginning of a new fiscal. What is the macro-outlook for the global steel industry and in particular with reference to Europe and India?
The last 12 months was one of the most challenging in the last decade with subdued demand in Europe and a significant over supply situation in China, resulting in multi-year high exports of around 118 million tonnes. This created significant pricing distortions. Based on the trend of the last two months, China continues to export significantly. Tariffs now dominate trade flow and pricing assumptions with most trade blocs having some form of protectionist measures in place.
On the demand side, the EU is upping its defence and infrastructure spending and India is focusing on large infrastructure and defence spends. This is expected to improve the demand conditions and while we expect better average prices overall compared with last year, there are too many uncertain external levers at play at present.
What would be the key drivers of performance in the next 12 months? Will the projected savings of ₹11,000 crore translate to EBIDTA?
The steel industry is very exposed to global macro-economic volatility as the supply chains are very long and complex and, hence, we are clearly focusing on controllable actions, including the ramp up of Kalinganagar production in Odisha, a cross geography-cost transformation programme across all parts of the business covering multiple areas through structural interventions to focus on a ₹11,000 crore cost take out. It’s a redesign approach and we will identify, intervene, track and trace to reduce our conversion costs. The extent of the restructured conversion cost flowing into net earnings will depend on the market impact of steel prices and the trajectory of steel price to raw material spreads but the structural cost transformation journey will continue.
Tata Steel has guided a ₹15,000 crore investment for FY26. Can you deconstruct the investment profile? What would the company’s India capacity be by the end of the decade?
Our focus this year is to complete and commission our ongoing portfolio of projects in India, including the 5 million tonnes expansion in Kalinganagar, our first Indian electric arc furnace project in Ludhiana and downstream projects. We will also start our site activities in the Port Talbot decarbonisation project in the next couple of months. All of these tie up to the capital allocation of ₹15,000 crore in FY2026. In India, we have a fairly robust runway of future organic growth options, including Neelachal Ispat, Kalinganagar and Mehramandali sites, and of which the expansion plan of NINL is progressing well on the engineering phase and regulatory clearances.
How is Tata Steel preparing itself in India for 2030 when legacy iron ore mines are put up for auction, and in Europe post decarbonisation from its competitiveness profile in the global steel industry?
In India we continue our preparedness to protect and enhance our competitiveness, with cost transformation, volume growth, product and service enrichment as our core levers based on increased automation, AI and digital analytics as the decision-making enablers. We also have a master plan for the iron ore supply which we are progressing.
The European decarbonisation projects are at different stages with the UK EAF Project ahead in terms of timelines and the Netherlands will follow once we stitch up the various elements. In these businesses too we are working on efficient project execution. structural cost readiness and supply chain preparedness to ensure future profitability.
Can you elaborate a bit on the master plan for iron ore?
Well, it involves development of newly acquired greenfield mines like Gandalpara in Odisha through auction apart from scaling up the mine we have through the acquisition of NINL. There are also a few other options which is in the works and will speak about it at an appropriate time.
With the closing down of the BF in the UK, and the production ramp up in the Netherlands, what would be the operating and financial performance plan for the UK and the Netherlands in the next 12 months?
Post the wound down of the Port Talbot heavy end steelmaking in the UK in end September 2024, there was a make safe period. So, in FY25 transition year, the cost take out was more than 20 per cent of fixed costs and we will repeat similar cost take out in FY26 with business operating on purchased substrate for the downstream value-added products. This should result in a break-even position this fiscal, which is a big shift in the economics of the Tata Steel UK, especially in current market conditions.
In the Netherlands, we have been operating at near capacity and we have a huge cost transformation programme initiated in the Netherlands to enhance our cost competitiveness and profitability despite the current market headwinds.
The government has imposed a safeguard duty recently. Is it going to be enough to protect the industry?
The safeguard duty is obviously welcome as it helps to protect against price distortions that cause injury to the domestic industry which has a large share of capital investment in the country and has a very significant impact on direct and indirect employment in the country.
The growth of the steel industry is an important enabler for India’s future sovereignty on a foundational sector like steel. China continues to produce at about 259 mt per quarter which is beyond its consumption level and the exports continue unabated both directly and circumventing through pass-through countries.
That’s a material risk on price distortions and we will have to see the adequacy of India’s safeguard levels if this continues in the next couple of months.
Globally, effective deterrent examples are in the EU which uses a system of safeguard duties, including tariff rate quotas and any import beyond that level has a import duty of 25 per cent while in the US it uses national security lever on imported steel where Section 232 of Trade Expansion Act imposes a 25 per cent duty.