The June quarter results were a mixed bag for Tata Steel. The company’s ED and CFO Koushik Chatterjee tells Sambit Saha of The Telegraph that the global steel cycle is at its ‘trough’ due to Chinese export but held out hope for a better second half in part due to higher volume from Odisha and by arresting deep losses in the UK. Chatterjee also warns that ‘overburden of taxation on minerals can create significant risk on future capex investments’, commenting on a recent Supreme Court ruling.

Tata Steel standalone was lower Q-o-Q and Y-o-Y despite record deliveries in the quarter ending June 30. What led to the dip in profit?

The December and the March quarters are typically the strongest quarter for multiple reasons. In addition, the volumes were lower by 0.48 million tons during the June quarter compared with the previous quarter due to the annual maintenance shutdowns in Jamshedpur and Meramandalli steel works. However, the EBIDTA margins were very robust at 20 per cent despite falling prices in the second half of the quarter.

How do you expect the rest of the year for Indian business, especially in the context of additional capacities coming from KP2? Also how do you see Chinese influence in the global steel industry currently?

Yes, the Kalinganagar new facilities are being commissioned gradually this year and we would have additional production of 1.6 million tons of capacity in the second half of the year. So we will have higher volumes for the current financial year compared with the previous year. Next financial year, too, we will have additional production as we ramp up Kalinganagar.

Globally, the steel industry is currently at its cyclical trough largely due to significant higher Chinese exports globally of over 100 million tons of the annual run rate. In effect China is exporting deflation due to its surplus capacity and lower domestic consumption within China.

The Chinese steel industry is operating at negative margins and hence unfairly priced exports are flooding the global seaborne markets. On a level playing basis, the Indian steel industry is globally very competitive but this unusual trade situation has raised the issue of necessary policy interventions across many countries including India.

European business was a mixed bag with Netherlands swinging to EBIDTA positive and UK plunging to bigger loss. What is the outlook of the UK and Netherlands for the rest of the year?

Tata Steel Netherlands has been operationally doing well compared with the previous quarter after the start up of the Blast Furnace 6 post relining. We are aiming for full out production in the coming quarters.

The UK operations on an underlying basis has improved and there is a lot of work going on in the transition as we safely closed down Blast Furnace 5 and are now planning the same for Blast Furnace 4 in September. Our cost structure will undergo a significant change in the second half of this year once the heavy end is closed and we move to the interim position before new EAF is commissioned in the future.

It appears that the new Labour government in the UK wants Tata Steel to up its future commitment. Is the company willing to scale up the size of EAF if there is more grant available? What has been the response of the voluntary redundancy process launched by TSUK so far?

Our discussions with the new UK government have been very constructive and we intend to continue our engagements meaningfully. We are looking forward to moving to the EAF project execution phase as soon as the Grant Funding Agreement is done. The preparatory work is going on in full swing currently.

On additional grant, I would only say we are in discussions and every investment will have to have its own business case. The currently proposed EAF cannot be scaled up but we are looking at what best can be explored in the adjacent portfolio.

On the voluntary redundancy programme, we have had good response so far and it will close on August 7 after which we will analyse the response and progress on the individual consultations.

TSN is preparing to replace one of the blast furnaces in Ijmuiden to a DRP–EAF by 2030. What will be the investment in the project and what would be the quantum of the Dutch government’s fund?

These are matters that we are currently in discussion with the Dutch government so it would be premature to talk about the details now. Unlike in the UK which will use steel scrap for its decarbonisation due to availability of domestic scrap in the UK, the Netherlands decarbonisation project will involve natural gas based Direct Reduced Plant – Electric Arc Furnace combination which will transition to hydrogen based Direct Reduced Iron once hydrogen is economically available in the future.

All that I can say is we are going through an intense and detailed process with the government for the business case, the funding support structure, the decarbonisation phasing, technology and capital expenditure and other related matters. The Carbon Border Adjustment Mechanism (CBAM) in Europe and the potential green premium makes this project critical for future value creation.

Do you support the view that the government of India should bring in changes in the MMDR Act to ensure that mining companies are spared from the taxes?

India as a country has the highest taxation on minerals globally and the states collect significant levy from the mining industry especially in the last decade. India is endowed with minerals and that is a national lever to compete globally in mineral used industries like heavy industries.

The MMDR Act in 2015 was pathbreaking in terms of bringing clarity to the future direction of mining. That became the basis for investments not only in the mining industry but also in the user industries that are foundational for our country like power steel cement aluminium etc.

Hence uncertainty, inconsistency between states on mining taxes and overburden of taxation on minerals can create significant risk on future capex investments which will ultimately affect the growth unless there is urgent policy intervention.