A prolonged slump in the domestic automobile sector has dragged down steel demand with companies increasingly becoming cautious about their capital expenditure (capex) plans. Tata Steel on Saturday said it would have to cut back its capex by a third this financial year on the back of muted demand for the alloy in India and abroad.
The steelmaker had initially planned to spend Rs 12,000 crore in India and Europe. While Rs 8,000 crore was earmarked for India, European facilities were to see an investment of Rs 4,000 crore. “The total capital expenditure would come down to Rs 8,000 crore. Both sides (India and Europe) will take similar cuts, but I don’t want to comment on who will get what. It is being worked on,” said T V Narendran, MD & CEO, Tata Steel.
In India, a majority of Tata Steel’s capex is planned for its Kalinganagar plant, which is undergoing its second phase of expansion of 5 million tonnes. “We will continue with the Kalinganagar project, but we have a way to prioritise. So, we are focusing on the cold rolling mill, which adds value without adding volume; priority is being given to the pellet plant for cost benefits,” Narendran said, “We hope the second half to be better.”
Steel prices too were under pressure on demand concerns affecting the cash flows of companies. Taking cognisance of slowing demand and subdued prices in the sector, JSW Steel has decided to go conservative on its push to acquire iron ore mines and thereby conserve cash. Some 45 iron ore mines are coming up for auction in Odisha later this month and JSW Steel earlier said it would actively participate in it to meet requirements of Salem (Tamil Nadu) and Dolvi (Maharashtra) plants. But officials said the firm will now take a more moderate view when these mining leases come up for auction, as after having paid a premium for mines in Karnataka, bidding aggressively for the Odisha blocks would mean an additional investment for JSW.
“The state has a huge supply potential of iron ore but there is a lack of matching demand for such a huge quantity. So, there is a potential risk,” an official said. JSW saw sales dip to 3.66 MT in June quarter, three per cent lower than a year ago.