Opinion

‘Mining should return to normal’

Suresh P. Iyengar N.S. Vageesh | Updated on July 28, 2013

H. M. Nerurkar, MD, Tata Steel

In India we have problems on the ground, but overseas we have difficulty in the market. So setting up a steel plant abroad does not make much sense.





The demand for steel has slowed down considerably in the last few months. Weak economic growth and constraints on fresh investments have taken a toll on infrastructure and real estate projects which drive the demand. The automobile industry, another major steel consuming sector, is also facing a slump. Apart from these challenges, steel companies face a steep increase in operational cost. Although the price of coal and iron ore have fallen sharply in the international market, it remains high in India due to restrictions on mining imposed by the Government. The sudden depreciation of the rupee against the dollar has caught steel companies unaware and made the import of raw materials costlier. With lending rates unlikely to soften in the near future, the task is clearly cut out for steel companies.

Tata Steel, one of the largest steel producers, recently absorbed a write-down of $1.6 billion (about Rs 8,350 crore) on its overseas investment. H. M. Nerurkar, Managing Director, Tata Steel, spoke to Business Line on the company’s strategy and its way forward. Excerpts from the interview:

How is the demand for steel now?

The demand is driven mainly by the automotive, construction and general engineering, railways and power sectors. Currently, the automotive sector is not doing that well for reasons we all know.

In construction we keep hearing of infrastructure projects including that of highways but we have not seen investment on the ground. Even in the commercial building segment we are not seeing projects being executed at the same speed as they used to. The residential segment is doing reasonably well. For instance, as per our data, the sale of longs (used in infrastructure projects) has gone up by two per cent in Q1 (FY’14) while that of cars (flats) hase remained the same or gone down marginally compared to last year. In this scenario, with an enhanced production capacity, we have ensured we market our products well.

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How do you see growth for the steel industry this fiscal?

The steel industry has been facing difficulty since last October. The recent meeting called by the Prime Minister shows the interest to boost the manufacturing sector. Everybody has understood that there is no way out except to encourage the manufacturing sector. Our technical expertise is good. Manufacturing needs to grow to meet the requirements of this country. We have to see how well the reforms are implemented. The economy is expected to grow at 5-5.6 per cent and the steel industry is expected to grow a little more than this.

Is securing raw material the biggest challenge for steel companies?

I do not want to blame anyone for the recent happenings in the mining sector. Yes, of course, there are bad examples everywhere, but that does not mean you have to stop land acquisition and mining. These are the sectors where things are not happy. You get to listen to ridiculous remarks and suggestions.

We behave many times as if we are the only people in the world who are doing mining. There are advanced countries such as Canada and Australia which have excellent law and order in the mining sector. We have to just take the cues from these countries.

The slowdown in commercial vehicle sales is due to the ban on mining. After the mining ban in Goa, (people do not know what to do with) all the barges and trailers. Yes, of course, the environment and responsible mining are very important, but shutting down the industry is not good.

Given the challenges in India, will you look at setting up plants abroad?

Setting up a greenfield project in the current scenario in India has become very difficult. Getting environment clearance and buying land takes time. A lot of energy is wasted. Mine allocation has come to a halt. Rules have become complex, suddenly the rules are implemented and some are changed.

In India we have problems on the ground, but overseas we have difficulty in the market. There is hardly any country which is growing and does not have an overcapacity situation.

So setting up a steel plant abroad does not make much sense now. The market has still not revived. Globally there is production overcapacity and the overseas markets are not doing well.

What is the progress in the new steel plant in Odisha?

We expect the project to be completed by the second half of next fiscal. There has been lot of delay in the project. If you recall, there was a lot of resistance during land acquisition and it took three to four years to sort this out. Fortunately, things are on track now.

We have invested about Rs 20,000 crore of the planned Rs 35,000 crore, but when we complete the project it will be slightly more. Any other company they would have stopped half-way, but our board had the confidence and went ahead with the investments despite the delays.

For our existing plants in other places, our target is to complete one million tonnes every year. Last year we achieved 8 mt, this year we will do 9 and next year we will touch 10 mtpa in Jamshedpur.

The reason for this is that when these facilities where coming on stream we missed some of the planned shutdowns. We will be taking them now.

Last quarter, for instance, we operated fully, but the next two quarters we will take some planned shutdowns. I’m sure we will operate at full capacity from next year onwards.

Do you think a cut in lending rates will revive demand?

No, I do not think so. Just reducing lending rates will not help much. If it is reduced people will start borrowing. We should also ensure that the borrowed money is utilised the right way. We also need to do something to prop up the demand and revive manufacturing.

Yes, of course, lower rates will help reduce our interest outgo, but a policy measure that will take us back to the economic growth of 7-8 per cent is the need of the hour. If this happens most of our problems will be solved.

What is the one thing that the Government needs to do to revive the economy?

As far as steel is concerned, the mining industry should come back to normal. Infrastructure projects should be put on the fast track. There was a time when new projects were implemented, such as the modernisation of airports.

These projects need to be revived again. Just imagine, if the mining industry is allowed to operate, it will revive the demand for commercial vehicles and the component industry will start doing well. It is like a chain reaction.

There is a disturbing trend of labour unrest across sectors. How do you think corporate houses can take on this challenge?

These things happen whenever the economy is not doing well. The only solution to take on this problem is to put the economy back on growth path. The aspiration of young people is growing and cost of living is also moving up. So they feel suffocated if there demands are not met.

Published on July 28, 2013

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