The spectre of a slowdown that has started to hover over the Indian economy — a direct fallout of the Reserve Bank of India’s surprise decision last week to raise its key policy rate by 50 basis points to 8 per cent — will not crimp demand for steel in the country, Tata Steel chairman Ratan Tata said here today.
However, the prevailing economic situation in Europe could pose a “challenge” for the Rs 1,18,753-crore steel giant, Tata told shareholders at the company’s 104th annual general meeting today.
Tata gave a cautiously optimistic assessment of Tata Steel’s global operations, tethering his faith to the fact that basic industries in every country would need steel as no other material can replace it. Demand for steel will rise irrespective of the different growth rates in various economies, he said.
“So long as there will be infrastructure projects in India that will grow, steel will continue to be in demand in this part of world,” he said, clearly indicating that the company’s Indian operations will continue to see robust growth.
Tata admitted that the prevailing economic situation in Europe could pose a challenge to Tata Steel as the region would continue to experience a very moderate growth rate.
“This may be impacted further by some events in terms of uncertainty like in the US at the present moment. Japan will have to endure the enormous burden of restructuring and reconstruction after the earthquake and tsunami. While GDP growth in China and India will continue to be high, they will be lower than the past few years because of government measures in both countries to control inflation,” he said.
The Tata Steel chief, however, added “this does not mean that the company will be adversely impacted or that the prospects for the months ahead are dismal”.
He said the European operations of Tata Steel would benefit from action taken in terms of securing raw material.
Giving an insight into the sort of raw material security that Tata Steel is building, he said though the company had sold its stake in Riversdale Mining to Rio Tinto, it continued to have a 35 per cent stake in a Riversdale subsidiary —Riversdale Energy (Mauritius) Ltd — which is a joint venture with Tata Steel. This will ensure that the company has a controlling offtake in coal from the facility, which has reserves estimated at 500 million tonnes (mt). This facility will supply coal to Tata Steel Europe initially.
The company also has other properties that will enable it to have a better control over raw materials. Earlier, an overseas arm of Tata Steel acquired a stake in Canadian miner, New Millenium Capital Corp. This company will have access to over 4mt of iron ore from the project. This is expected to be commissioned in the second half of 2011-12.
Responding to some shareholders’ queries, Tata said the funds from sale of investment in Riversdale would be used as capital expenditure in new projects.
The AGM saw various shareholders asking Tata, who is due to retire in 2012 ,to stay on. Replying to a specific question, Ratan Tata said the committee entrusted with the task of finding his successor would identify the person who would eventually take the group further ahead.
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