‘India strongest part of our steel portfolio’

Having successfully weathered the ups and downs of a cyclical industry, Narendran’s tenure was extended by five years starting in September.

In an interview, he commented on a wide range of issues relevant to the company and the sector. On European operations, he said the company’s operations in the Netherlands would be able to sustain itself through its earnings and support from the government, but the UK operations remain a concern. Edited Excerpts:

Indian operations again have come to the rescue of the firm’s European operations. Is that a concern?

India is structurally the strongest part of our portfolio. That’s why we want to grow in India as fast as possible. The Netherlands is unique, as it can support its own transformation and, on an ongoing basis, is not really a challenge itself. The UK (operations) is always a challenge.

But investors are still a little wary about the decarbonization investment that is required to be done in Europe.

So, it’s like this; we are comfortable that the Netherlands business can support its transformation from the cash flows that it generates from the support that I expect to get from the government. If you need to borrow some money on the Netherlands balance sheet, we can do that, and that can be serviced out of the cash flows. The concern is the UK operations, where the cash flows of the business can’t support the transformation. The support of the government is even more critical and hence the conversation with the government. So, I think in both these cases, obviously, the government plays a role which is not unusual. Germany is supporting Thyssenkrupp AG. The Spanish government is supporting ArcelorMittal. The Luxembourg government is supporting ArcelorMittal.

So, pretty much, European steel companies are going to their local governments seeking support and getting support because all these governments have also committed to a significant reduction in the carbon footprint of the economy by 2030.

So, what is the worst-case scenario for the UK operations?

In the UK, the heavy end associated with upstream steel-making iron-making assets are reaching the end of life... If we do not do anything, then one by one, those assets will reach the end of life, and it’s not safe to run them. There is a kind of clock ticking there, and which we said in the past, may be in the next year or two, we’ll have to take those calls. The downstream assets—all the value products that we do, the downstream coating lines, the pipe mills—are fine.

So, we would then look at the UK separately as upstream and downstream, and then take a call on what needs to be done. But I think that’s a hypothetical situation. I mean, we are not yet there till we exhaust the options with the government. I think the government is also keen to find a solution.

There were some reports about an exit from the UK if this help from the government does not come.

So, that was a bit speculative. We are in a conversation with the (UK) government, and we are not at that stage where we need to exercise it.

On the UK pension scheme, are any more payments to be made after this latest payment?

No! It’s over. The transaction is complete. I mean, it is formally getting completed the next month. So, there’s no direct or indirect liability on Tata Steel- truly a very important development.

There is some talk about a private steel company (Vedanta’s ESL Steel Ltd) looking for buyers. Would you have the appetite for that acquisition?

We feel the most optimal way for us to grow is through brownfield expansion now that we have the sites. We are in a comfortable position because between Nilanchal, Kalinganagar and Bhushan, we are at 9 million tonnes - five at Bhushan and three in Kalinganagar, and 1 in Nilanchal - and this can easily go to about 35 million tonnes. Then you have Jamshedpur at 11 mt, where we have enough land and facilities available to grow from 20 million to 45-46 million tonnes. We have set a target of 40 million tonnes by 2030, but you know, if you need to grow faster, we can grow faster. We’ll watch what the market is. So, we don’t really need new sites and new assets, but obviously, any of these we will keep an eye out on.

Now in India, in Q1 compared to Q4, our realizations are ₹1,000 per tonne higher, which is what we had guided and more a reflection of the contracts we had, and April prices were higher than June prices. But in Q2, we are guiding that prices will be about ₹3,100 per tonne lower. Between flat and long products, flat products seem to have stabilized. I think we’ve already hit the bottom, and now it’s balanced and trending up. Long products will continue to be soft for another month or two till the monsoons are over because construction activity is normally dull during the monsoon period. Europe realisations will also be $38 a tonne lower in Q2 over Q1.