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[Asian Steel Watch] Vol.4 (2017.12)

[Asian Steel Watch] Vol.4 (2017.12)

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Interview Rising Elephant: Tata and the Indian Steel Industry

  • WriterThachat Viswanath Narendran
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1) Tata Steel’s brief history and business
  • Tata Steel was set up more than a 100 years ago as our Founder J N Tata felt that for any nation to be able to stand on its own, a strong steel industry is essential. The company was set up not only to become a leading steel company in the world but also to become a benchmark in corporate citizenship. The founder, J N Tata, felt that the community is not just another stakeholder in the enterprise but the very purpose of its existence.
  • We have a strong culture of continuous improvement and are the only steel company outside Japan to win the Deming Grand Prize. We have done some very innovative work in marketing and sales and have a strong distribution network and a bouquet of very successful brands. We are the leading supplier to India’s automotive industry and have a market share of 44% in our supplies to the automotive industry. We are the number one player in India for wires and tinplates, and we also have a large pipes business. Overall we have a passionate and talented employee base, strong relationships in the market, a great competitive position on cost due to our efficiencies, and a culture of continuous improvement. This explains our longevity and strength even after being around for 110 years.
2) Factors that drive growth of India’s steel demand
  • India is still at an early stage of development and so the potential for growth in steel consumption in India is immense. Our per capita consumption of steel is currently at 63 kg which is about 25% of the world average and 15% of what it is in China. The per capita consumption of steel in rural India is about 5 kg. If India has to grow at 7 to 8% as has been predicted, the government has to spend on building infrastructure and a lot of actions on that are already evident.
  • According to the National Steel Policy, the biggest growth in steel consumption is coming from the infrastructure segment where the government is expecting steel consumption to grow from the current level of 10 million Mt to 100 million Mt in the next 10 to 15 years. Tata Steel will continue to invest and grow in our two main production sites of Jamshedpur & Kalinganagar. Over the next 10 years, we hope to grow from the current level of 13 million Mt in India to 25 to 30 million Mt.
3) Restructuring of Tata Steel’s European operations
  • Tata Steel has a footprint of 2 million Mt in Southeast Asia which is essentially long products for the construction industry through the EAF route. It has three plants in Thailand and one plant in Singapore for steel making and rolling mills and downstream units in both countries as well as in Vietnam, Malaysia and Hong Kong. In Europe, it has a footprint of 12 million Mt now (between the Netherlands and the UK). The focus of its overseas facilities is on efficiency and profitability and not so much on growth. Most of the restructuring in Europe and Southeast Asia is complete but we will continue to look for opportunities to improve the performance.
4) Restructuring of the Indian steel industry
  • The Indian Steel Industry has a temporary overcapacity problem as I believe that demand growth will outstrip supply growth over the next few years. Restructuring is happening because of the financial health of this sector which has invested a lot of capital in building capacity and has been plagued by a falling market in 2015 and early 2016.
  • Fundamentally, India’s steel industry is quite competitive. Until 2015 it had no problem competing with imports from anywhere in the world. When a slowdown in China led to imports flooding in from China and other countries at prices lower than the prices in their domestic markets, the industry took up the issue with the government and had got some support. India also allows 100% foreign direct investment (FDI) in steel and mining and so anyone who is keen to participate in growth opportunities in India is welcome to invest in India.
5) Medium- to long-term outlook on the global steel industry
  • Until a few months back, we felt that growth in consumption in countries other than China will more than offset the shrinkage in consumption in China, so overall global growth in steel consumption will be in the 1 to 2% range.
  • The most significant demand growth is expected to come from India and Southeast Asia. Together, it is a market of almost 1.7 billion people consuming about 160 million Mt of steel and growing at 5 to 6% on average.
6) Advise for foreign investors
  • When foreign investors look at India they should take a long term view. It is a challenging market but a market with full of potential. It may be one country but it is not a homogeneous market. There is a lot of talent available in India and it is a young country demographically. There will be challenges in land acquisition and sometimes with the myriad values and regulations. But it is a market worth investing in. Korean automotive companies and appliance manufacturers are great examples of foreign companies who came in well before many others and have built a strong equity in the domestic market. It is one of the fastest growing large economies in the world and still at an early stage of development. It is blessed with a lot of good quality raw materials. It has a government which is trying very hard to improve the ease of doing business and attract foreign investment.
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