Tata Steel Focuses on Cost Reduction and Evaluates New Projects Amid European Challenges

Tata Steel is focusing on cost reduction in Europe, reassessing the economics of its Netherlands green steel project and evaluating two locations for domestic electric arc furnaces. The company expects an improvement in Indian steel demand in the second half of FY27. MD and CEO TV Narendran and CFO Koushik Chatterjee speak to Urvi Malvania. Excerpts: The Netherlands has delivered a better Q2 than Q1 and we expect Q3 and Q4 to be better than Q2. It has historically been Ebitda-positive and cash-positive. The UK remains more challenging. We have reduced fixed costs by £500 million and closed blast furnaces, but excess imports have constrained volumes. We need 550,000 tonnes per quarter to break even and are currently at 400,000 tonnes. We expect inventories to ease by Q4, taking us close to break-even. Annual contract renegotiations should support revenues, although higher energy costs have added £20 million per quarter. We focus on what is within our control, including input, conversion and fixed costs. We set annual cost reduction targets across geographies and monitor them closely. We also engage with governments on policy issues. Steel is a geopolitically sensitive industry, affected by trade flows and wars, with governments closely involved because of its employment significance. These are largely stagnant markets, with limited headroom and little margin for error. We are focusing on volumes, asset reliability, cost reduction and efficiencies. Higher natural gas and carbon costs make these efforts more important. Regulatory barriers are also supporting prices, and we need to capture the resulting improvement in spreads. Two issues have led to the extension. Certain conditions, including policy changes relating to slag and clarity on the coke gas plant closure, remain unresolved. We hope to get greater certainty on these. Separately, engineering work at the existing plant has indicated significantly higher capital expenditure than initially estimated, affecting the investment case. We are evaluating alternatives with the government and need to optimise capex to make the project viable. H1 volumes were affected by the Netherlands shutdown, slower-than-planned Kalinganagar ramp-up and inventory in the UK. We expect these to improve in H2 and support cost savings. Natural gas price stabilisation should also help. We are taking on additional targets to achieve our original FY27 goal. Cost improvement is a continuous process involving productivity, revenues, volumes and debottlenecking. We expect Q3 prices to be Rs 3,500 per tonne higher than Q2, with September’s recovery providing a higher base. New auto contracts will also come into effect in H2. We expect demand to improve across sectors. January-June is typically the strongest period, driven by construction, which accounts for 60% of steel consumption, and a seasonal lull in Chinese exports. We are sanguine about H2 pricing. Costs appear to have peaked, as has the West Asia-related impact of Rs 1,400 crore per quarter. Our priority is securing iron ore at competitive costs; owning mines is a means, not an end. Existing mines will provide 30-35 million tonnes annually after 2030, against requirements of 50-60 million tonnes. At 130% auction premiums, market purchases or imports make more sense. At 100-110%, we may consider captive mines, depending on ore quality. Market purchases also offer greater flexibility in blending. Our strategy will reflect changing economics, and we expect premiums to moderate as more mines become available. We are evaluating two locations, one in the west and another in the south. Competitive long-term power costs are a key consideration for the western location. Land requirements are 100-150 acres, potentially rising to 250 acres for a second EAF. We expect to announce the locations in six to eight months. Construction typically takes 20-22 months. Our model involves collecting scrap and selling finished products within a 200-km radius, making power costs and scrap availability critical.