Given the slump in demand and volatile raw material prices, Tata Steel expects the next two years to be challenging.
The economy has slowed down in the last 12 months, and some sectors, including automotive and capital goods, are faced with a demand slowdown that is unlikely to turnaround quickly, Cyrus P. Mistry, Chairman, Tata Steel, said in the company’s annual report note to shareholders.
“In the face of volatile raw material prices and systemic weakness in demand in key markets, the next 18-24 months will be challenging for Tata Steel,” he said.
However, a series of management initiatives targeted at strengthening core operations, including investment in select facilities, product rationalisation and right sizing of manufacturing assets, are set to put the company on a stronger footing, he said.
The recently commissioned 3-million-tonne per annum (mtpa) brownfield expansion at Jamshedpur is gradually ramping up and should enhance earnings, Mistry said. With regards to the 6 mtpa greenfield steel plant in Odisha, he said work is continuing at full speed for the first phase of 3 million tonnes.
The outlook for the Euro Zone area continues to be depressed and the company had to revise its cash flow expectation and valuations of the Group’s European operations.
In the key overseas markets of Europe and the UK, the economic downturn has significantly affected steel demand, which is now almost 30 per cent lower than the pre-2008 financial crisis level, he said.
The operational capabilities in Europe have been strengthened with initiatives targeted at efficiency enhancements, product rationalisation and restructuring. These actions, the Chairman said, could improve the competitiveness of the European operations even though the market is expected to remain challenging.
The South-East Asian operations have already started reporting better results on the back of restructuring initiatives undertaken earlier, he added. The Chinese economy, too, has witnessed a moderation in growth rate, and it is widely expected that following the political transition, China would look at re-balancing the economy to a sustainable level, Mistry added.