Interview: Tata Steel mulls further India expansion

India's private-sector Tata Steel is considering the viability of expanding capacity at its flagship Jamshedpur steel plant to 13mn t/yr, although its long-term expansion plans focus on its Kalinganagar plant.

"We will expand Jamshedpur capacity to 11mn t/yr from 10mn t/yr at present through debottlenecking. Further expansion is possible but we will have to look at the cost and complexity and take a call," Tata Steel's managing director TV Narendran told Argus in an interview on the sidelines of the Worldsteel conference in Tokyo.

The Jamshedpur plant in the eastern state of Jharkhand is located in a crowded town, posing challenges for further expansions. The plant was set up over 100 years ago, making it one of India's oldest.

Tata Steel is expanding capacity at Kalinganagar in eastern Odisha state to 8mn t/yr from 3mn t/yr. The 3,000-acre (12km²) plant site has more space to expand compared with the 1,700-acre Jamshedpur plant.

Tata Steel recently acquired the 5.6mn t/yr nameplate capacity Bhushan Steel through India's bankruptcy resolution process, boosting its capacity further. "Bhushan Steel had never produced more than 3.5mn t/yr before we acquired it. This fiscal year we expect to produce 4.2mn-4.3mn t and next year we will produce 5.3mn-5.4mn t," Narendran said. India's fiscal year runs from April to March.

Three bankrupt steel companies have so far been sold through auctions. The sales of Essar Steel and Bhushan Power & Steel are still in the bidding process.

The auctions will add supply to the market as new owners ramp up output towards rated capacity. "Underutilised assets will get better utilised," said Narendran. The bankruptcy process sends a strong message to other producers to not blindly increase capacity in good times, as this could cause problems when the market weakens, he said.

Private-sector Essar Steel has lifted its output to an annualised rate of 6mn t/yr from 3.5mn-4mn t/yr previously, despite the bankruptcy process not being completed yet, after the company's management was replaced by bankruptcy resolution professionals and funds were injected, said Narendran. "What we have heard from bidders is the output could go up to 8.5mn t/yr," he added.

The leading bidders for Essar Steel are joint ventures between global producer ArcelorMittal and Japan's Nippon Steel & Sumitomo Metal, and Russian investment bank VTB and India's JSW Steel. Indian resources firm Vedanta is also a bidder.

Vedanta acquired Electrosteel through the bankruptcy process, and said there is potential for capacity at the firm to be expanded to 2.5mn t/yr from the current 1.5mn t/yr. JSW Steel acquired the 1.5mn t/yr Monnet Ispat.

But these supply additions are unlikely to create a glut in the domestic market, where demand is expected to grow at over 7pc/yr over the next few years. This would mean an additional 7mn t of steel is needed every year, said Narendran.

And capacity additions in India are unlikely to be as rapid as those in China, as setting up a greenfield steel plant is extremely hard. "It took us 10 years to start the Kalinganagar plant despite all our experience," said Narendran. Land acquisition and regulatory clearances are major obstacles to setting up a new steel mill in India, meaning most capacity additions are done through the brownfield route.

"In India, demand will always grow faster than capacity," said Narendran. Around 60pc of India's steel demand comes from construction, where railways, roads and other infrastructure projects are the major demand driver and will remain so in the longer term. "If India has to grow at 7-8pc then this cannot happen without investments in infrastructure," Narendran said.

Rising oil prices have pressured government finances but the country's fiscal deficit is still quite manageable and there is room for the government to spend more on infrastructure in the short term, he added.

Steel imports to India are less of a concern than they were two years ago, as a sharp fall in the value of rupee has made imports less competitive while the decline in China's exports has also brought stability to Asian and world markets. In the key Vietnamese hot-rolled coil (HRC) import market, it is India, Russia, Turkey and other countries that are setting prices, not China, said Narendran.

HRC prices will be in the $550-650/t range in the next 2-3 years globally, which is largely in line with the trend over the last 10-15 years, he said. Prices have risen in the Indian market in recent months largely because of the depreciation in the rupee, as domestic prices are benchmarked to dollar-denominated global prices.

Tata Steel plans to export around 1.5mn-2mn t of steel in the current financial year that started 1 April, around 15pc of its total output including production from Bhushan Steel.

Indian coil exports into the EU have been a concern for local producers. Market participants have suggested the European Commission may be keeping a close on eye on import volumes after the marked depreciation of the rupee.