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Tata Steel, one of the world's leading steel producers, has expressed concerns about the feasibility of significant expansion in the coming quarters unless the price of steel recovers. Their Managing Director & CEO, TV Narendran, highlighted the critical link between steel prices and the company's ability to invest in growth. He believes that if steel prices remain stagnant at current levels, around $450-$500 per tonne, it will be challenging for any steel company to justify large-scale expansion projects, as the returns on investment would be less than desirable. Narendran emphasized the need for steel prices to reach a range of $550-$650 per tonne, a level he anticipates will be achieved when Chinese steel exports decrease to a range of 50-60 million tonnes annually. This target figure represents a substantial reduction from current export levels, which reached a record high of over 10 million tonnes in September, translating to an annualized export volume of roughly 100 million tonnes. The high volume of Chinese steel imports, particularly impacting flat steel products, has created significant downward pressure on global steel prices.
Narendran urged the Indian government to take action against the influx of competitively priced Chinese steel, arguing that China is selling steel at a loss and should not be exporting its surplus to other markets. While recognizing that China has initiated reforms and measures to address its steel surplus problem, including a planned production cut of 40 million tonnes this year, Narendran believes that further actions are necessary. He expects the US presidential election to further motivate China to reduce its steel exports due to potential trade tensions. Despite the challenges posed by Chinese imports, Tata Steel remains optimistic about the long-term demand and pricing prospects for steel. The company is particularly optimistic about the prices for long steel products, which are less susceptible to competition from Chinese imports, which primarily focus on flat steel products. Tata Steel's optimism is further fueled by a belief that the low pricing experienced in September and October represents the nadir of the current market cycle.
Beyond the impact of Chinese steel imports, Tata Steel acknowledges the volatility in the European markets, leading them to prioritize domestic expansion. They are currently increasing the capacity of their Neelachal facility, specializing in long steel products, from 1 million tonnes to 5 million tonnes annually. Additionally, they have already expanded the capacity of their Kalinganagar facility from 8 million tonnes to 13 million tonnes and are implementing several other smaller capacity expansion projects. In light of the current market conditions, Tata Steel is taking a cautious approach to exporting steel beyond the United Kingdom, where their Port Talbot plant is undergoing a significant transformation. The plant is transitioning from blast furnaces to an electric arc furnace, which will reshape its operations and output. For the foreseeable future, Tata Steel plans to direct the majority of its export volumes to the UK, with approximately 10% of its overall production being exported. The company's strategic focus on domestic expansion and a measured approach to international exports reflects their commitment to navigating the current challenges and ensuring the long-term success of their steel operations.
Source: No expansion can take place unless steel prices recover: Tata Steel MD