Indian steelmakers will find it difficult to support significant capacity expansion if the domestic steel prices remain at the present level, the Tata Steel management has cautioned.

T.V. Narendran, CEO and managing director of Tata Steel, told analysts that cash flow generation (at current level) would not support investment for tens of million tonnes of fresh capacity that Indian steelmakers have committed. The Tata Steel MD argued that private sector capex revival is being led by the steelmakers.

Tata Steel and its peers such as JSW Steel, AMNS India, JSPL and public sector SAIL have all announced major expansion plans through the decade.

Tata itself had earlier guided to reach 40 million tonne (mt) capacity by 2030 in India. It would close this fiscal with 26.6mt capacity after a 5mt expansion at Odisha’s Kalinganagar for $27,000 crore.

“Tata Steel and other steelmakers announced significant capacity expansion plans. But if steel prices stay at $450-500 a tonne level, difficult for any steel company to support very significant expansion,” Narendran replied when asked if the present steel prices justify aggressive capacity expansion.

Steel prices hit a low of ₹48,000 a tonne in September before recovering somewhat in October. The prices were at ₹62,000 a tonne at the beginning of FY24. Domestic prices are under pressure due to Chinese imports at a deep discount, squeezing margins. Indian steelmakers are urging the Centre to impose tariffs to protect the domestic industry.

“A good place for steel prices is between $550-650 a tonne and that is where it will be when China’s export comes down to 50-60 mt. We need some sort of comfort there,” Narendran added.

Tata Steel, however, is prepared to take up expansions at multiple sites as and when cash flow justifies value-accretive projects. Engineering work and process to obtain environment clearance for expansion of NINL is going on. Tata Steel plans to take up the expansion of NINL capacity to 5mt from 1mt at present in the next phase.

However, it is also preparing the groundwork for another phase of 5mt expansion at Kalinganagar and 2mt at Angul. “If market is good and cash flows are great, we can start expansion in all three sites at the same time,” Narendran pointed out.