InterviewRising 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 100years ago as our Founder J N Tata felt thatfor any nation to be able to stand on itsown, a strong steel industry is essential.Thecompany was set up not only to become aleading steel company in the world but alsoto become a benchmark in corporate citizenship.The founder, J N Tata, felt that thecommunity is not just another stakeholderin the enterprise but the very purpose of itsexistence.
We have a strong culture of continuousimprovement and are the only steel companyoutside Japan to win the Deming Grand Prize. We have donesome very innovative work in marketing andsales and have a strong distribution networkand a bouquet of very successful brands. We are the leading supplier to India’sautomotive industry and have a marketshare of 44% in our supplies to the automotive industry. We are the number one playerin India for wires and tinplates, and we alsohave a large pipes business. Overall we have a passionate and talentedemployee base, strong relationships inthe market, a great competitive position oncost due to our efficiencies, and a cultureof continuous improvement. This explainsour longevity and strength even after beingaround for 110 years.
2) Factors that drive growth of India’s steeldemand
India is still at an early stage of developmentand so the potential for growth in steelconsumption in India is immense. Our percapita consumption of steel is currently at63 kg which is about 25% of the world averageand 15% of what it is in China. The percapita consumption of steel in rural India isabout 5 kg. If India has to grow at 7 to 8%as has been predicted, the government hasto spend on building infrastructure and alot of actions on that are already evident.
According to the National Steel Policy, the biggest growth in steel consumptionis coming from the infrastructuresegment where the government is expectingsteel consumption to grow from the currentlevel of 10 million Mt to 100 million Mt inthe next 10 to 15 years.Tata Steel will continueto invest and grow in our two mainproduction sites of Jamshedpur & Kalinganagar. Over the next 10 years, we hope togrow from the current level of 13 million Mtin India to 25 to 30 million Mt.
3) Restructuring of Tata Steel’s European operations
Tata Steel has a footprint of 2 million Mt inSoutheast Asia which is essentially longproducts for the construction industrythrough the EAF route. It has three plantsin Thailand and one plant in Singapore forsteel making and rolling mills and downstreamunits in both countries as well asin Vietnam, Malaysia and Hong Kong. InEurope, it has a footprint of 12 millionMt now (between the Netherlands and theUK). The focus of its overseas facilities is onefficiency and profitability and not so muchon growth. Most of the restructuring inEurope and Southeast Asia is complete butwe will continue to look for opportunities toimprove the performance.
4) Restructuring of the Indian steelindustry
The Indian Steel Industry has a temporaryovercapacity problem as I believe thatdemand growth will outstrip supply growthover the next few years. Restructuring ishappening because of the financial health ofthis sector which has invested a lot of capitalin building capacity and has been plagued bya falling market in 2015 and early 2016.
Fundamentally, India’s steel industry isquite competitive. Until 2015 it had no problemcompeting with imports from anywherein the world. When a slowdown in China ledto imports flooding in from China and othercountries at prices lower than the prices intheir domestic markets, the industry tookup the issue with the government and hadgot some support. India also allows 100%foreign direct investment (FDI) in steel andmining and so anyone who is keen to participatein growth opportunities in India iswelcome to invest in India.
5) Medium- to long-term outlook on the global steel industry
Until a few months back, we felt thatgrowth in consumption in countries otherthan China will more than offset the shrinkagein consumption in China, so overall globalgrowth in steel consumption will be in the1 to 2% range.
The most significant demand growth isexpected to come from India and SoutheastAsia. Together, it is a market of almost 1.7billion people consuming about 160 millionMt of steel and growing at 5 to 6% on average.
6) Advise for foreign investors
When foreign investors look at India theyshould take a long term view. It is a challengingmarket but a market with full of potential.It may be one country but it is not ahomogeneous market. There is a lot of talentavailable in India and it is a young countrydemographically. There will be challengesin land acquisition and sometimes with themyriad values and regulations. But it is amarket worth investing in. Korean automotivecompanies and appliance manufacturersare great examples of foreign companieswho came in well before many others andhave built a strong equity in the domesticmarket. It is one of the fastest growing largeeconomies in the world and still at an earlystage of development. It is blessed with alot of good quality raw materials. It has agovernment which is trying very hard to improvethe ease of doing business and attractforeign investment.