We invested, supported our UK biz for a long time: Tata Steel's Narendran

Tata Steel Europe — which has steelmaking operations in the UK and Netherlands – surprised all in Q1 of FY23 with its best-ever quarterly earnings before interest, taxes, depreciation and amortisation (Ebitda). However, the UK operation continues to be fragile with an impending transition to greener steel. Tata Steel and Tata Sons chairman, N Chandrasekaran, indicated in a recent interview to Financial Times that without government aid there could be closure of sites. T V Narendran, managing director (MD) and chief executive officer (CEO), Tata Steel, tells Ishita Ayan Dutt that there is a case for the UK government to support the transition because it involves carbon footprint reduction. Edited excerpts:

Europe was a big driver for Tata Steel’s performance that beat estimates. Is this sustainable?

Not at these levels. It was really an outstanding quarter and we did as much as we have done typically in a year. In Q2 also, we will see cost pressures; coking coal prices have started dropping, but we will not see the benefit in Europe till Q3 because of the inventory we have in the pipeline. Secondly, while 30 per cent of our contracts are annual that will stay on till December, 30 per cent are half-yearly. Those half-year contracts will come up for renegotiation in July and there will be some sort of price correction then. So, there will be margin compression in Europe as well. But Europe will do better than what it has done traditionally.

Ebitda/tonne in Europe was higher than Tata Steel India. Is that a first?

Normally, when you look at Europe, the realisations are higher. We had the benefit of high annual contract prices and half-yearly. So it’s the first time that Europe Ebitda/tonne is higher. Netherlands, has done particularly well. That’s something to be proud of because it buys 100 per cent of its raw material. So, it’s even better than India, which buys 80 per cent of coal, but 100 per cent of the iron ore is our own.

Despite this performance, you would have to shut down Port Talbot if the government aid of 1.5 billion pounds doesn’t come through. Isn’t that ironic?

The UK business has come a long way. Today, it is Ebitda positive and cash positive. As it runs today, it can run. But in the next couple of years, many of the assets will come to the end of life. So, those assets will either have to be replaced with new ones or transition into a new process. Our submission to the government was this is a good time for us to transition into different process routes which are greener. It helps the government and us to reduce carbon footprint. It also helps create new assets, which can be sustainable in the long term. Governments in other countries like Spain, Germany and Canada are helping the steel industry transition. The amounts indicated in the media report are higher than what we have asked for. The proposal we submitted is two years old, and we will fine tune that closer to conclusion.

If it doesn’t come through, what are the options for the UK?

As the chairman said, we will have to look at whether the sites can survive. It’s the upstream assets that are under pressure while the downstream assets are quite strong. It’s obviously a difficult call, but then, Tata Steel and Tata group have supported the UK business for the last 15 years. So, at some point in time, we will have to take a call. Our point is, as shareholders, we have invested and supported that business for a long time. It’s a very important part of the manufacturing value chain in the UK. So, I think there should be strategic interest from the UK government also to keep it going. And, we are not asking for funding losses or putting money into a business, which may not be viable, but for transition into a greener business.

There is some concern that the transition in the UK will cost 3 billion pounds. If 1.5 billion pounds is from the government, would Tata Steel India have to fund the rest?

The total amount required is much less. The principle is that if the government puts in 50 per cent, then we will have to put in 50 per cent.

Can Ijmuiden support the transition to green steel?

It is in a much better position to do so. It is always cash positive, and generates surplus. Our task to the team is to build a corpus for the transition, which has started already. So, we will build a corpus and then we will look for some support from the government. But we will not be as dependent as we are in the UK for support.

There is some apprehension that the worst of market volatility — in terms of lower steel prices and export duty —have not been factored in the Q1 results for Europe and India. So what is the outlook for Q2?

In both Europe and India, there will be margin compression in Q2. So, I agree that Q1 has not seen the worst. I don’t want to give specific guidance because there are too many moving parts. We are looking at how much of the cost we can pull out, but still there will be a margin compression. On the positive side, we see volume expansion. We expect to sell at least 0.5 million tonnes more in Q2 than we did in Q1.