Tata Steel's UK operations seen recovering from March quarter

Tata Steel expects its UK operations to recover from the March quarter as a build-up of imported steel inventories eases, while its Netherlands business is set to perform better in the second half of the fiscal. Operations in India continue to remain a bright spot for the global steelmaker, CEO T V Narendran and CFO Koushik Chatterjee told Nikita Periwal. Excerpts:

Europe is taking longer than expected to turn around. How are stakeholders viewing it?

Narendran: The Netherlands has largely been a cash-positive story, except for when we had a blast furnace relining. We have done better in the second quarter compared with Q1, and Q3 and Q4 will be better. The operational and financial performance is improving, but we are dealing with a regulatory hangover.


The UK has been a much bigger challenge in Europe for us for the last two decades. After we cut down fixed costs and closed the blast furnaces, we have had an issue because of imports. While we got policy support in March, it allowed a window to import, and as much as two-three quarters' worth of steel has been imported during that time. So, today in the UK, we have the policy, prices have improved, but we are waiting for the inventory to flush out.

How has that impacted operations in the UK, and when can we expect an operating profit?

Narendran: Our volumes, which ideally should be about 600,000 tonnes a quarter, are today at 400,000 tonnes because of the inventory lying around. This is expected to continue in the current quarter as well, so the third-quarter numbers will not be very different from Q2. But numbers are expected to be much better in the fourth quarter because most of the current inventory would be flushed out and we will also get better annual contract prices. So yes, it has pushed back the breakeven in the UK, but we are moving in the right direction. We have had our own set of challenges, some of which were not anticipated.

Chatterjee: There is an interesting shift happening in the European steel industry with respect to energy, whether it is natural gas, hydrogen, or fossil fuels. Healthy blast furnaces now seem to be a lot more relevant for continuity than what we had assumed in the past. Because a blast furnace also creates energy, it is always more economical than other routes. So, while European operations are a drag, if market prices remain elevated, and we can expand margins in Europe to 10-12%, like the best in Europe, then we are significantly better off because our revenue per tonne in Europe is much higher than our revenue per tonne in India. The UK is different because it is a much smaller and open market. Our focus is to ensure that it sustains itself during the transition and becomes profitable post-transition.

How are prices in the UK holding up if these imports are so competiti-vely priced?

Narendran: The inventory I am talking about is not ours, but inventory that was booked before duties became applicable. So, instead of an inventory of three months, there is an inventory of eight to nine months. Meanwhile, anything coming today is at today's price, which is what the market is reflecting. We expect this inventory to be flushed through the March quarter, after which volumes will go up for us.

What does the Indian steel market look like in the near term?

Narendran: It is a good time from a demand perspective, with the continued focus on infrastructure by the government helping. Our customers are all growing. Automobiles, particularly, are a great story, whether it is two-wheelers, three-wheelers, four-wheelers or even commercial vehicles. There has been some pressure on costs, but if things ease in the Middle East, that will help us. We also expect H2 numbers in India to be better because we lost some volumes in H1 due to operational instabilities in some of the blast furnaces.