Tata Steel slows India expansion

Tata Steel has slowed the expansion of its east India-based Kalinganagar plant. This will delay the commissioning of expanded capacities amid sluggish growth in domestic steel demand.

Tata Steel had started the project to expand Kalinganagar's crude steel capacity to 8mn t/yr from 3mn t/yr in late-2018, and had planned to complete the project within 48 months, by the end of 2022. The company has not given a new deadline for completing the project.

The company would commission a cold-rolling mill and a pellet plant at the Kalinganagar plant in the 2020-21 fiscal year starting 1 April. Commissioning of the pellet plant will help Tata Steel cut costs by reducing third-party pellet purchases.

Tata Steel has become the second major integrated steel producer to delay an expansion project. JSW Steel recently pushed back the completion of its 5mn t/yr brownfield capacity expansion at the Dolvi plant by up to six months from a March 2020 commissioning date.

India's steel demand has slowed considerably over the past several months. The economy in a tailspin as banks and other financial institutions are reluctant to lend to corporates amid a rising pile of bad debts. Slower public spending on infrastructure projects, a sluggish real estate market and decline in automobiles output have hit steel demand particularly hard.

Steel demand has improved for industrial infrastructure and commercial real estate projects though infrastructure and housing sectors remain sluggish, said Tata Steel. Construction accounts for over 60pc of India's steel consumption. There has been some uptick in steel demand from railways and drinking water, oil and gas pipeline construction projects while automobile sector demand remained slow.

Steelmakers are betting on the economic slowdown bottoming out in the 2019-20 fiscal year, with an uptick in economic growth and infrastructure spending lifting demand in 2020-21.

Tata Steel has kept open the option of accelerating the Kalinganagar expansion if there is sustained demand growth in 2020-21. It also plans to reduce export volumes if domestic sales pick up. The company is also operating its recently acquired Bhushan Steel at an annualised rate of 5mn t/yr, up from 3mn t/yr at the start of 2019, which would give it additional volumes to sell.

By Prasenjit Bhattacharya