Steel companies will find it difficult to support significant expansion in the coming quarters if the price of steel does not recover, Tata Steel MD & CEO TV Narendran said on Thursday.
He also said that China steel imports will need to come down to nearly half of what they are currently for a price recovery.
“If steel prices stay at $450, $500 (per tonne) levels, it will be difficult for any steel company to support significant expansion. You can keep expanding, but it will not be as value-accretive as one would expect it to be,” Narendran said during an earnings call.
“I think a good place for steel prices is between $550 (per tonne) and $600 or $550 and $650, which is where it will be when China’s exports come down to about 50-60 million tonne,” he added.
Chinese steel imports, at over 10 million tonne, hit an eight-year high in September, resulting in annualised imports of around 100 million tonne.
“Most other countries have already taken action. So, our submission to the government is to take action. I think the government is looking at it because obviously China is selling this steel at these prices and not making money at these prices. So, they shouldn’t export that problem to us,” Narendran said.
Tata Steel reported a net profit of Rs 759 crore in the September quarter compared to a loss of Rs 6,511 crore in the same quarter last fiscal on a consolidated basis. This was despite a 3% drop annually in revenue at Rs 53,905 crore.
Narendran conceded that China has started taking initiatives to tackle its steel surplus problem in the form of reforms and measures to rein in production. For example, the country is expected to cut production by around 40 million tonne this year, and has suspended approval of new steel projects, even if it is for replacing capacity.
“I think there are actions being taken in China and now with the US presidential election, I think China will be even more concerned about its trade options and will take some action to reduce some of these excesses,” the Tata Steel MD and CEO said.
The company said it has a positive outlook on demand pricing in the coming quarters and the pricing lows hit in September-October could mean the worst is behind. It also said it is more optimistic about its long product prices which are less affected by China steel imports, which are mostly flat steel products.
Apart from the Chinese steel imports, Tata Steel also called out volatility in the European markets, which has prompted it to look towards domestic expansion. It said it is in the process of expanding the capacity of the Neelachal facility (part of the Neelachal Ispat Nigam acquisition), which produces long steel products, from 1 million tonne to 5 million tonne a year.
It has also commissioned capacity expansion at the Kalinganagar facility from 8 million tonne to 13 million tonne in addition to other smaller capacity expansion exercises.
Until such time that Chinese steel exports to other markets moderate, Tata Steel will also take a cautious stance on exporting steel beyond the UK. For the next few years, the company said most of the export volumes will go to the UK where Tata Steel’s Port Talbot plant is undergoing a shift from blast furnaces to an electric arc furnace. Tata Steel exports around 10% of its production.
From: financialexpress
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