Tata Steel Limited recorded quarterly profit of 12,548 crore in the September quarter, boosted by better performance in its European operations. But high energy prices in Europe are a risk, said Kaushik Chatterjee, executive director and chief financial officer of India’s largest steel producer by capacity. Edited excerpts from an interview:
Energy commodity prices are going up. How is the company addressing this?
There has been an inflationary trend around the world. So I think, from that point of view, it’s left to internal actions on cost extraction, reduction in overheads, which, has been a journey for us for many years and so there’s no confidence on that front. Energy prices are high in Europe, and we see this as a risk. But I think it is being addressed. In some ways, this is going to be a winter where we have to be very cautious, and even there we are taking steps to make sure that our exposure to energy prices is reduced, both from a consumption perspective as well ( In) by taking positions which we have already taken some energy risk on hedges etc. So I think that’s how we essentially want to control for the inflationary effect of these prices on profitability.
Your partner is considering implementing an energy surcharge to combat rising costs.
In Europe, we have a carbon surcharge of €12 per tonne, and it is increasing. When the price level is strong, no matter how you transfer that cost increase to customers and what you call (it) by name, it works. But we have to make sure that we continue our inner work to improve our potential. And we should always consider raising prices when price allowances are high. So I think overloading is logical from a passthrough point of view. And that’s how our comrades are seeing it. We have done the same in Europe.
What is the impact of Chinese policies on the steel sector?
China is strategically moving away from exports and focusing on nationalizing its potential. It is cutting production. So the impact of potentially lower real estate asset creation in China is being countered by lower production by China. At the same time, China is focusing heavily on its carbon emissions. So importing raw materials, producing steel, booking carbon in the name of the country and then exporting it is not the best in the equation for any country or industry in the long run. It is therefore important to understand that China’s influence on the maritime trade market is gradually diminishing. And as we see, its impact on domestic markets will be less and less
As we have seen over the past decade, steel is becoming much more localized than globalization. So local factors are at play a much more deterministic than international factors, although it is always an import equality-based product. While China still holds 50-55% of global steel capacity, they are on a fairly set path on reducing their carbon footprint and focusing on better technology and essentially reducing Chinese steel to Chinese demand . And if we keep seeing this, it will be more domestic factors that will influence.
How do you see stricter emissions standards affecting steel supplies?
The carbon issue is a global issue. Therefore, emission standards are important. For example, in Europe, they are proposing to introduce a carbon limit adjustment tax. Laws within Europe are therefore becoming much more stringent and ensure that the steel industry’s carbon emissions are further reduced. They will not allow imported steel from anywhere in the world to come with a high carbon content in the steel. So we are seeing supply crunch in the steel industry. And this is actually one of the structural reasons why prices are higher because there is limited supply. And the latent efficiencies in Europe are not coming back because they have to buy carbon credits, which are also increasing significantly. So if you look at this whole equation, it should be domestic supplies for household needs. Or else you have to make sure the limit adjustment takes care of it, and there’s a penalty for that. So that imports of steel become expensive in regions such as Europe, so consumers will have to pay for the high carbon steel that is being imported.
Certainly India will continue to grow. And, of course, is one of those countries where development is happening, and brownfield capabilities are coming. We need steel for growth as GDP grows, and the Indian economy gets bigger, and infrastructure spending gets bigger, and the transition begins a decarbonization as India hits its 2070 target of net- declared to be zero. You will find that the need for infrastructure is increasing on a yearly basis.
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