Tata Steel to log out of coal supply from Russia
With the war situation in the Caucuses, the supply chains of raw materials coming from Russia and Ukraine have been badly hit. On the one hand, there is a virtual embargo on Black Sea cargo and that is hurting the export of Russian inputs.
Secondly, the payment constraints created by Russia being blocked from SWIFT has also created hassles for Russian exports. One company that could suffer in this bargain is Tata Steel Europe.
Currently, Tata Steel gets bulk of its coal supplies from Russia for its European operations, which is under the Corus umbrella. On the other hand, the India operations depend largely on Australia and Indonesia for their coal supplies.
While Tata Steel India’s coal procurement is unlikely to be impacted, it is Tata Steel Europe that is looking at more stable and reliable avenues for coal imports. It is now looking at getting coal from the US and Canada.
There is a larger reason why Tata Steel Europe wants to put its supply chains in order quickly. The recent geopolitical situation created in the Caucuses after Russia invaded Ukraine has also been a blessing in disguise for European steel makers.
It has opened up steel export opportunities in Europe to fill the supply vacuum of 45 MMT, normally coming from Russia and Ukraine. According to TV Narendran of Tata Steel, this is a big opportunity.
Currently, Tata Steel Europe is relying on Russia to supply about 15-20% of its coal needs. Now Tata Steel is looking at alternative sources of coal imports to de-risk and sustain its operations smoothly. Most of the Russian coal is used by Tata Steel for Pulverised Coal Injection (PCI).
Incidentally, PCI is a process that entails injecting large volumes of fine coal particles into a blast furnace. Now, it will de-risk its coal supplies from North America.
This Russian stand-off is likely to open up a huge steel export opportunity for Tata Steel. Exports from Tata Steel Europe is likely to cross 1 million tonnes in FY23, while Tata Steel India is expected to export nearly 15% of its steel output in FY23.
While input costs like ore, coking coal and power have surged, the massive inventories held by Tata Steel across its global operations will help them ease the situation and handle supply chains better.
According to Narendran, for now, the price increases are higher than the input cost spike. However, he also cautions that if the conflict prolonged for few more months, it could start hitting steel demand too.
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