BOAO, Hainan - Tata Steel Limited - the world's 10th-largest steel company by production and a subsidiary of Tata Steel Group - will increase investment in China by 5 percent in 2012, as it seeks to maintain market share according to the company's managing director.

 

A man passes the gate of the Tata Steel Ltd building in Kolkata, India. The company expects to export more products from its Chinese mills to Europe and Japan. [Photo/Agencies]

 

In an exclusive interview, Hemant Madhusudan Nerurkar told China Daily that the company will not make any major investments in its rolling mills, located in the cities of Wuxi in Jiangsu province and Xiaman in Fujian province, this year, "But next year there will be some changes," he said.

Currently, the company's problem in China is overcapacity, which means production far exceeds real demand, said Nerurkar. He added that capacity will gradually decline as the government encourages more energy efficiency in the industry.

"Infrastructure investment in China is still very high, and there is still great demand for steel. As Chinese industry becomes more and more self -sufficient in raw materials, I'm sure it will turn out well."

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Meanwhile, rising demand for more value-added products, such as coated steels, electrical steels, and products for the aviation industry will provide opportunities for the company, said Nerurkar.

He said the Chinese steel industry has developed very well in the last 10 years at an "admirable" speed. He also expects the company's business in China to grow at the same rate as the country's steel consumption growth, by 5 to 7 percent increase year-on-year.

Currently revenue from China contributed no more than 3 to 4 percent to the company's total revenue in the latest fiscal year, said Nerurkar.

Apart from local demand, Tata Steel also expects to export more products from its Chinese mills to Europe and Japan, both markets that require external supplies.

At present, the company isn't considering entering into partnerships with Chinese steel players, said Nerurkar, although it hasn't ruled out the possibility of developing downstream partnerships at some point in the future.

"Possible cooperation with Chinese companies also involves issues such as energy conservation, climate change, and some energy-saving products."

In December 2006, a subsidiary, Tata Refractory, opened a factory in Yingkou, a city in Northeast China's Liaoning province. Later, Corus Ltd, later renamed Tata Steel Europe, was acquired in early 2007. It also has a trading business in China.

Established in 1907, Tata Steel has an existing production capacity of 30 million tons annually, and a presence in more than 50 European and Asian markets, with manufacturing units in 26 countries worldwide.

Nerurkar said Tata Steel will continue to look for coking coal and iron ore assets for acquisition in areas such as Africa, Canada and Brazil, to secure raw materials and counter fluctuating prices for coal and iron.

The industry is facing severe price fluctuations, and 70 percent of costs come from iron ore purchases, said Nerurkar, when he spoke at the Boao Forum for Asia in April.

He suggested that iron ore suppliers and steel companies should return to an annual pricing mechanism to avoid frequent price fluctuations for raw materials based on quarterly negotiations between the two sides.

In common with the rest of the steel industry, raw material prices will inevitably affect Tata Steel's profitability, said Nerurkar.