Tata Steel Ltd is prioritizing growth in high-margin value-added products over aggressive capacity expansion as rising iron ore costs and shifting market dynamics push India’s second-largest steelmaker beyond simply producing more steel.
The company’s focus is on converting primary steel into higher-value products such as precision tubes, speciality steel wires, coated sheets and tinplates.
“We are looking at at least 55-60%, but honestly, we are also saying, why should it be linked to upstream? At some point in the future, the downstream volume can be larger than the upstream volume. I can always buy upstream from someone else,” said managing director and chief executive T.V. Narendran, in an interview with Mint.
At present, about 35-40% of the volumes are downstream.
In the industry, upstream refers to the production of primary steel. Downstream, on the other hand, involves processing this primary steel into higher-value, ready-to-use products.
Changing business
The shift marks an evolution in Tata Steel’s strategy at a time when the company expects limited additions to its upstream steelmaking capacity over the next few years. While it retains the option to expand crude steel capacity to as much as 65 million tonnes through projects at existing sites and a potential greenfield plant in Maharashtra.
The top executive highlighted that the economics of integrated steelmaking are changing as iron ore, traditionally one of the country’s biggest competitive advantages, becomes more expensive.
“The cost of iron ore in India is going up. A lot of the value of upstream… was that iron ore was plentiful and available at a competitive price. But in the last five-six years, the iron ore cost has gone up hugely,” he said. “A lot of that value is going as premiums, taxes, and levies to the government even before you start making steel.”
Tata Steel is currently insulated by its captive mines, but Narendran acknowledged that the company’s iron ore costs will also rise after 2030, necessitating a rethink of its long-term strategy. Tata Steel’s captive iron ore mines in Jharkhand and Odisha will expire in 2030. After that, the company will reduce its dependence on 100% captive (self-owned) mines to at least 50% captive sourcing.
Instead of focusing solely on producing more hot-rolled coils, the company aims to capture a larger share of the value chain by converting steel into branded and specialized products through its processing, fabrication, and distribution network.
“If everyone is building hot-rolled-coil capacity, I’d rather be a buyer of hot-rolled coil than a seller of hot-rolled coil,” Narendran said. This contrasts with JSW Steel Ltd. The country’s largest steelmaker is aiming for an 80 million tonnes-per-annum capacity by 2031.
One emerging opportunity the company is targeting is the country’s rapidly expanding data centre industry, where billions of dollars are expected to be invested over the coming years.
“We have teams across Europe and India working on this and developing solutions for people who build data centres. We will not build data centres, but we will want to supply to those who build them,” Narendran said.
With no significant capacity additions expected until the 4.8mtpa expansion at Ispat Nigam Ltd comes on stream in 2031, the Mumbai-based steelmaker is exploring the addition of more electric arc furnaces (EAF) to increase capacity.
After commissioning its Ludhiana EAF, the company is evaluating another plant in western India, followed by one in the South.
Narendran said building downstream businesses takes considerably longer than constructing steelmaking capacity because companies need to develop markets, brands and customer relationships.
Overseas business
The steelmaker expects an operational turnaround by the end of 2026-27. Narendran said losses in the UK business are expected to continue narrowing, with the company aiming to achieve positive earnings before interest, taxes, depreciation, and amortization by the end of fiscal year 2027.
Tata Steel came to own both the IJmuiden plant in the Netherlands and Port Talbot in the UK as part of its 2007 acquisition of Corus Steel. The IJmuiden plant has a capacity of 7mtpa.
In the Netherlands, the company is in no hurry to commit fresh investments until it resolves ongoing regulatory issues with the Dutch government, and there is “no definite timeline”, said executive director and chief financial officer, Koushik Chatterjee.
The company wants to resolve the current regulatory issues and is seeking a regulatory framework or a legal certainty for the future, Chatterjee said.
authorities have proposed revoking operating permits and accelerating the closure of coke plants due to alleged environmental non-compliance.
Earlier in July, Dutch public prosecutors had summoned executives of Tata Steel’s Netherlands arm over a case of “intentional and unlawful” pollution, nearly four years after the country first started a probe to ascertain if the steelmaker’s business was a danger to residents in Holland, Mint reported earlier.