Steel demand will grow by around 12 per cent if the economy grows by 8 per cent, Tata Steel Managing Director H. M. Nerurkar said, even as he admitted that prices of raw materials were posing a challenge.
Addressing a pressmeet here on Monday, he said “Inflation is the main worry as it may impact demand, but rising prices of key inputs were also posing a challenge,” adding that prices of iron ore and coking coal were expected to increase by 80-90 per cent and there was also a global shortage of the commodities.
He said that while Tata Steel was insulated from iron ore price fluctuations, having its own mines. It had a 50 per cent dependence on coking coal for its Indian operations. However, the challenge was greater for Corus, its European operations which faces pressures on its margins and increased need for working capital. Out of Tata Steel's worldwide production of 24 million tonnes, it has to buy raw materials for 17 million tonnes from outside. Borrowing needs may increase on account of increased raw material prices as a $50 increase in input prices translates into a $100 increase in production cost for a one million tonne plant. “I agree that steel prices are a sensitive issue but increase in raw material prices is unprecedented. There is worry in the domestic segment as there is overcapacity in Indian industry.” He said that there was a need to appeal globally to the producers but said that this would have to be done individually. The fact that contracts were being made quarterly now made the position even more unpredictable. He indicated that prices of finished products would have to take in the prices of inputs but margins would be impacted. He said that Tata Steel was investing Rs. 15,000 crore to take the Jamshedpur unit capacity to 10 million tonnes annually from around 7 million tonnes now. Orders for Rs. 13,000 crore had already been placed and projects were on schedule, he said. The project includes a three million tonne blast furnace, a 6 million tonne pellet plant, two new stamp-charged coke oven batteries and facilities for handling raw materials and infrastructure.
The company had no fund-raising plans as liquidity position was comfortable. “We will go public when required,” he said. Costs are going to increase due to higher outgo on account of raw material and freight but efforts will be on to mitigate this through cost reductions.