Value addition key for Tata Steel as prices fall and costs increase

ET Intelligence Group: Tata Steel's year-on-year revenue growth at 14% in the June quarter surpassed expectations, driven by strong realisations. In the short term, revenue visibility looks less predictable given softening global steel prices amid rising Chinese exports. Also, rising coking coal costs may pressure profitability. Increasing the share of value-added products will be critical for sustaining profitability.

The company is likely to face the impact of softer steel prices as early as the September quarter. It expects domestic steel realisations to soften by around ₹1,500 per tonne in the September quarter due to seasonal weakness in long products. Realisations had improved by ₹5,991 per tonne sequentially in the June quarter. Chinese steel exports remain elevated at around 9-10 million tonnes a month, keeping pressure on international steel prices.

Rising input costs, particularly coking coal, may elevate margin pressure. Raw material costs increased 5% sequentially to ₹31,574 per tonne for the company, according to Nomura Financial Advisory and Securities.

In such a situation where weaker pricing meets stubborn input costs, the company is looking to move up the value chain. It aims to improve presence in value-added products such as cold rolled steel, galvanised steel, colour-coated steel, and tinplate, apart from processing services and customer-specific solutions. The board has approved a 4.8 million tonne expansion of Nilachal Iron Ore & Steel (NINL) facility, taking the plant's total capacity to 6.2 million tonnes per annum. The project aims to strengthen Tata Steel's presence in high-margin branded long products.

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The company has been increasing focus on automotive steel, shipbuilding, oil and gas, and emerging sectors like data centres where products require lengthy customer approvals and stringent certifications, which raises entry barriers.