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TV Narendran, MD & CEO, Tata Steel, says the India business

will be challenging but it is sustainable because demand is strong. But prices are still a bit fragile reflecting what is happening in the international markets. Narendran expects a little bit more stability in China going forward and either they will cut production or reduce exports because the prices they are selling at is not sustainable. The Chinese steel industry is not making money at these prices.

How has been steel demand in India and abroad?

TV Narendran:

Basically, the India business has continued to be quite resilient. It has been a challenging quarter. Demand in India has been strong. There have been margin pressures because of international steel prices, but operationally we have had a strong quarter, we have had good production that has helped bring down costs.

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In Europe, we have two businesses. The Dutch business is going through a few challenging quarters because of the blast furnace relining going on, so only one of the two blast furnaces were operating. The blast furnace which is being relined is going to start next week. So, you will start seeing better quarters from the Netherlands because that has been a big drag for us.

Normally, the Netherlands contributes positive EBITDA and positive cash to our numbers. The UK has always been a challenge. We have announced a significant restructuring which we expect to play out over the next six to nine months and the benefits of that restructuring will be visible only after we complete that in the next six to nine months.

So, what essentially you are saying is that the UK may remain soft for some time but the Netherlands will start contributing back in the coming quarters.

TV Narendran:

That is right.

There were very good margins also this time in India business. Do you think this kind of a good performance from India business is sustainable in the next few quarters as well?

TV Narendran:

It is sustainable. It will be challenging but it is sustainable because the good news is demand is strong. But prices are still a bit fragile reflecting what is happening in the international markets. But I do expect that in China there will be a little bit more stability going forward because either they will cut production or reduce exports in my view because this is not sustainable. The Chinese steel industry is not making money at these prices.

So, we expect some changes there, but a little bit more discipline coming from there. So, that is the way we see it. So, I think we do expect to maintain this level of performance in the coming quarters.

Within this performance, which is good on the India business, Chinese imports are also hurting the industry even when realisations are going up. Is this issue a bit of a drag on the overall good environment in India business?

TV Narendran:

So, it is having an impact. We are obviously impacted by higher raw material costs because when China produces a lot of steel, the raw material prices stay high. So, you see iron ore prices and coal prices staying high. Because of that, there is margin pressure on the Indian steel companies, not just Tata Steel and then when we try to push up prices, the threat of Chinese imports is there. So, that is why we have struggled a bit. We have represented it to the government.

I think everyone is watching how much imports are coming in. It is increasing a little bit, but if it stays at this level or drops, then maybe things are under control. So, we are watching the space because in 2015 when China was exporting 10 million tonnes a month, we appealed to the government and we got some support. Now, China is exporting about 8 million tonnes a month, so it is pretty close to that. So, let us wait and see what happens in the next few months.

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