Tata Steel’s Narendran worries about China overhang, but expects less price volatility in 2016

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Steel prices could stabilise this year after the industry bore the brunt of China’s overhang in 2015, Tata Steel’s Managing Director T.V. Narendran said.

He said 2015 was one of the worst years for the industry, which saw prices crash by more than 40 percent, as the Chinese economy slowed the the market was flooded by surplus Chinese exports.

“I think the overhang in China is quite significant, it is not going to go away in a hurry. The (Chinese) government is working on it, they have tightened environment norms and that should affect some of the smaller units, but it will take some time. I think hopefully this year we will see some of those actions taking effect,” he told CNBC in an interview.

Narendran said he hoped India and South East Asia would grow, as these two markets have been absorbing a fair amount of the overhang from China and Japan and Korea.

“So, I hope 2016 will be slightly better than 2015.”

Narendran said some 60 million tonnes of extra steel had come into the market from China, impacting prices, but added that he didn’t expect more exports by China as the government was working towards shrinking production.

“So, production has dropped by about three percent, consumption is dropping by about five percent. So, I don’t see too much extra steel coming in more than what has already come in. Most of the Chinese steel companies over 70 percent are losing money. I don’t think they can sustain very long at these prices because it is not as if Chinese steel companies are competitive and making money at these prices. I think they are losing as much money if not more money than many of us,” he said.

Narendran said he hoped the price fall had already been factored in the 40 percent decline, as there had been a price stabilisation of late.

“In the last three weeks we have seen stabilisation of prices, slight upside in China domestic prices, it is going up and down, but at least the unidirectional movement downwards seems to have stopped,” he said.

 

 

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