Rise in input prices to put pressure on margins: HM Nerurkar, MD,Tata Steel

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While THM Nerurkarata Steel is expecting a 10% demand growth in India during FY11, the company is worried about increasing raw material prices this year that is likely to hit its production costs, particularly, for Corus in Europe. For most steel companies, depending on their raw material security, working capital needs are also likely to shoot up. In the domestic market, Tata Steel says inflation remains a worry. The company’s MD, HM Nerurkar, spoke.

What is Tata Steel’s production target next year?

We have already achieved a 6.8 MT capacity in Jamshedpur. We expect to go up to 7.1 MT in 2010-11, which is 0.3 MT above rated capacity. Our saleable steel target is 7 MT and we hope to do 6.61 MT in sales in FY11.

To what extent is the company affected by the rising raw material prices?

A change in annual price contracts into quarterly pacts and a 80-90% hike in iron ore and coal prices will lead to a cost increase of $120-140 per tonne on account of higher raw material expenses and freight charges during Q1 this year. This will raise working capital requirement significantly and put pressure on margins.

The jump in input costs will affect our European operations where we are 100% dependent on market coal and iron ore. We have thus decided to re-negotiate raw material prices with global suppliers.

In India, we have a captive iron ore base but we purchase 55% of our annual coal requirement from the market. Tata Steel produces 7 MT in India and another 17 MT in Europe. In Europe, auto companies have written to the European Commission on the input price hike.

Tata Steel formed a JV with NMDC recently. Have you made any progress ?

We have formed three working groups. We hope to come up with a concrete project proposal in the next 3-6 weeks.

Tata Steel’s project in Orissa has been dogged by land delays and protests, like most other large steel projects. When do you think you can start work in Orissa?

We have been facing a difficulty in Orissa for the past three years, where we hope to start something this year. Till we start, we do not want to say anything. We have moved some 800 families and we would like to complete the rest of the rehabilitation job.

Are you worried about the Maoists problem affecting your operations?

In the short term, it is a worry and we wonder about the safety of our people and our associates in affected areas. But we are perhaps seeing the worst. In the long term, the situation should improve since the government is now taking the right action, in terms of education, food, shelter etc. We have also been investing in community development for more than 100 years. We hope not to suffer.

Environment concerns are now a big issue. What is Tata Steel’s carbon footprint? What is the company’s target?

Tata Steel has a carbon footprint of 2.25 tonne per tonne of steel. We have set a target of achieving 2.05 tonne per tonne of steel post expansion at Jamshedpur. We are focusing our R&D efforts on this. Global carbon emissions level in the steel sector are at 1.8 tonne per tonne of steel.

(Source: Economic Times, 14 April 2010)

Posted by on Apr 14 2010. Filed under CSR Interviews. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

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