Tata steel said that no major capital expenditures (CapEx) are expected in the next 12 months at its Dutch unit, which is slated to decarbonize its steelmaking operations. The company flagged that the project will still involve some preliminary work for the first 18 months and actual spending will ramp up only once on-the-ground construction will begin, Executive Director and Chief Financial Officer Koushik Chatterjee said in a post-earnings call held on November 7.
The green steel project in the Netherlands, targeted for completion by 2030, is expected to surpass the scale of the UK project as it will involve both an Electric Arc Furnace (EAF) and a Direct Reduced Iron (DRI) unit, according to Tata Steel. It expects negotiations with the government to be concluded by the end of the year.
Tata Steel's major European facility is located at IJmuiden in the Netherlands. "Our investments in the Netherlands will heavily depend on the level of support we receive from the Dutch government, similar to how our UK investments..we were dependent on the support we got from the UK government. So that's a conversation we are having with the Dutch government and let's see where that goes. And then while we have submitted our proposal, let's see what the extent of support is and then we'll take a call," said Chatterjee.
Tata Steel expects negative operating cash flows for its Netherlands operations in Q3 due to higher fixed costs and operating expenses. However, the company anticipates a turnaround in Q4, aiming for at least a neutral cash flow by the second half of the year. The lower costs of iron ore and coal, along with efforts to tighten working capital, are expected to help improve the financial outlook moving forward.
Tata Steel's EBITDA in the Netherlands for the quarter was Rs 243 crore, against a loss of Rs 1,145 crore last year, but lower than the Rs 453 crore reported in the April-June quarter.
Expansion plan to fuel cost savings
Meanwhile, Tata Steel anticipates improved cost efficiency as its expansion plans for the Kalinganagar plant in Odisha take shape and estimates savings of about Rs 3,000 to Rs 4,000 per ton of steel produced, Managing Director TV Narendran flagged during the call. Post the completion of the expansion plan at Kalina Nagar, which will raise its steel making capacity from 3 MTPA to 8 MTPA, the steelmaker expects the capex cycle to slow dowm.
Tata Steel has invested Rs 27,000 crore in phase -II expansion of the plant. The increased capacity of Kalinganagar plant will play an important role in its ambition to achieve the target of 40 MTPA capacity in India by 2030. Of this, Rs 18,000 crore has been spent so far.
Tata Steel added that an expansion at its subsidiary Neelachal Ispat Nigam, also located in Kalinganagar, is in the planning stage, with public hearings scheduled for later in November. That expansion will take the steelmaking capacity of the plant to 5 MTPA, according to Tata Steel.
Bullish on demand in H2
Commenting on the demand environment, Narendran said he expects a stronger second half as construction picks up, which benefits steel demand, given that 60 percent of it goes into construction. However, he flagged that net realizations would be about Rs 2,000 lower in Q3 compared to Q2. This is largely because in Q2, July prices were quite high and then it dropped till September.
"In October, steel prices started going up, but we don't expect prices in December to be the same as what was included," he added.
Tata Steel's performance in the first half of the year was weaker than anticipated, mainly due to slower construction activity, influenced by the monsoon season and lower government spending.
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