Ladies and gentlemen, good day and welcome to Tata Steel Analyst Call. Please note that this meeting is being recorded. All the attendees' audio and video has been disabled from the back end and will be enabled subsequently. I thank you all for your patience. I now would like to hand the conference over to Ms. Samita Shah. Thank you, over to you, ma'am.
Good afternoon, good morning, and good evening to all of you joining us today. Welcome to this call, and thank you for dialing in. We have with us our CEO and MD, Mr. T. V. Narendran, and we have with us our ED and CFO, Mr. Chatterjee who will discuss the results and walk you through any questions you may have. Our presentation, which describes the results, has been uploaded on our website. Do go through it if you haven't already. We will take questions in audio mode as well as chat mode. Before I hand it over to them, I would just like to draw your attention to the clause on page two of the presentation, which is the cover clause, which essentially will cover the entire discussion today. Thank you. Over to you, Naren.
Thanks, Samita. Good day, everyone. A bit of a narrative on the way we see the situation. Global operating environment has continued to be volatile during the quarter amidst inflationary pressures, tightening financial conditions and the COVID overhang. Among the key economies, the U.S. and E.U. witnessed a quarter-on-quarter decline in industrial output, while the Chinese GDP grew at its slowest pace since 1976. Given this backdrop, global steel prices continued to remain under pressure for most of the quarter and resulted in subdued steel spreads. In the E.U., the steel spot spread, including energy and emission related costs, went close to $200. In India, economic activity remained resilient, however depressed international prices weighed on the sentiment.
Moving to our performance, Tata Steel India deliveries stood at 4.74 million tonnes and were up 7% year-on-year, primarily driven by 11% growth in domestic deliveries. Our domestic deliveries grew at a faster pace than the Indian steel apparent consumption, which was about 8% year-on-year. It reflects our strong market presence across segments and agile business model. Some of the highlights were our value-added segments, like the oil and gas, infrastructure, solar and retail housing grew by about 17% on a year-on-year basis, in part due to the expanding product range and innovative solutions. Tata Tiscon, which is largely sold to retail customers, registered a best ever quarterly sales. We continue to expand our physical reach via new dealers and a virtual reach through Tata Steel Aashiyana, our e-commerce platform for individual home builders.
Sales through Tata Steel Aashiyana have consistently grown over 50% in the last two years. Our sales to the MSME sector has grown by 25%-30% year-on-year over the last two quarters. We have moved from tracking six segments to 80 micro segments, which has helped us understand customers better and enhance the ability to move material across micro segments based on demand. Looking ahead, we expect Indian steel prices to move higher based on improved expectations about the Chinese demand and the sustained government spending on infrastructure in India. Raw material costs are likely to remain range bound, and fourth quarter is also seasonally the stronger quarter in terms of deliveries, and we're looking to leverage the momentum. We continue to progress on expanding our capacity across multiple sites in India as we look to grow to 40 million tons in India.
During the course of deliveries, FY 2024 should fully reflect the 1 million tonne per annum in Kalinganagar volumes, while subsequent years, FY 2025 and 2026 will reflect the 5 million tonne expansion in Kalinganagar Phase 2 and the 0.75 million tonne setting up of the electric arc furnace mill in Ludhiana. We are parallelly expanding our downstream operations at tin plate, wires and tubes. The ongoing expansion in tin plate is from 0.38 million tonnes per annum to 0.68 million tonnes per annum. The wire capacity is being expanded by, from 0.47 to 0.55 million tonnes per annum. The tubes capacity from 1.2 million tonnes per annum to 1.5 million tonnes per annum.
Separately, phased commissioning of the 6 million tonne pellet plant at Kalinganagar has begun. We should start adding pellets from the second quarter of FY 2024, which will help reduce our costs. We are also looking to commission the PLTCM, which is a 50 million ton tandem coal mill, which is part of the 2.2 million tonne per annum CRM complex during this quarter. On slide 19, we have provided some domestic details of domestic deliveries across sectors. Over the years, while we have sold more volumes in automotive and share, it has also moved to around 15% of our total sales. This is due to rise with the commissioning of the CRM complex and the incremental capacity at Kalinganagar. Similarly, the growth in long products will drive an increase in the high-margin retail housing business for us.
Moving to Europe, the steel deliveries were around 2 million tonnes in the third quarter. Though the volumes were higher by 6% quarter-on-quarter basis, the sharp drop in realizations on subdued demand and elevated costs, including energy, have weighed in on the steel spreads. Looking ahead, uncertainty persists about supply and demand fundamentals despite the recent pickup in EU prices, driven by the hopes of a milder and shorter down cycle. Our steel realizations will remain subdued in fourth quarter given the lag effects of some of the contracts. We continue to make progress on our sustainability journey, targeting net zero by 2045 via multiple pathways. We've already started initiatives such as charging more scrap into our furnaces.
Our products like Tiscon Billets construction blocks and GGBS have had slag as one of the inputs, help us to increase solid waste utilization, as well as address customer needs for eco-friendly solutions. Before I hand over to Koushik Chatterjee, I'm also happy to share that Tata Steel is the only company in India to be recognized by the World Economic Forum as a global diversity, equity, and inclusion lighthouse. We've also been awarded a Great Place to Work certification for the sixth time in the quarter year.
Thank you, Naren. Good morning, good afternoon, and good evening to all those who have joined in.
Let me give you a deeper sense of the financial performance. Our consolidated revenues for the quarter stood at about INR 57,084 crores, while EBITDA stood at INR 4,154 crores, which translates to a margin of about 12%. Standalone EBITDA margin was higher at about 18%. Overall, the profitability was affected by a sharp drop in the realizations and spreads in Europe during the quarter. First the standalone, at Tata Steel standalone India, the EBITDA stood at INR 5,334 crores, which translates to an EBITDA per ton of about INR 11,623. Excluding the current Forex impact, the EBITDA stood at about INR 4,763 crores and was up by about 15% quarter-on-quarter. India steel prices remained subdued for most part of the quarter.
The fall in long prices, long products prices were higher than in the flat products due to extended monsoon and the stoppage of construction in Delhi in the NCR region as per the ruling of the National Green Tribunal. However, barometer prices were also lower as coking coal prices declined by around $82 per ton on a consumption basis. Royalty has also declined by about 14% quarter-on-quarter to INR 775 crores. Overall, the drop in cost more than offset the greater than expected decline in net realization, and that's led to the margin expansion. At Tata Steel Europe, the EBITDA loss stood at about GBP 166 million.
As Naren mentioned, deliveries were up 6% quarter-on-quarter. There was a sharp drop in realization within the quarter, with revenue per ton being down by about GBP 159 per ton. The sharp drop in realizations were part due to the higher spot sales and subdued demand given the macro conditions in Europe and high stock of inventories with the customers. The costs were higher by about GBP 31 per ton while the coking coal consumption costs were down by about $95 per ton quarter-on-quarter. There was a NRV markdown loss of about GBP 55 million on the slab stocks being carried due to the forthcoming relining in Tata Steel Netherlands. Energy costs remain broadly stable on a quarter-on-quarter basis.
The currency markets have also been very volatile and there has been sharp movement between the USD INR and the Euro INR to name a few. This has led to an FX impact on the intercompany loans provided over time, and this resulted in a Forex gain around INR 1,427 crores at the consolidated level. Taxes for the quarter stood at about INR 2,905 crores and are fundamentally made of two parts. A, the current tax in line with the profitability in India, largely. B, the non-cash deferred tax charge primarily is due to the reduction in the surplus in British Steel Pension Scheme as a part of the de-risk scheme, and I'm coming to that point soon.
We made further progress during the quarter on de-risking the British Steel Pension Scheme and expanded the insurance coverage, from 30% to 60% now. This buy-in transaction and the actual movement during the quarter have led to the reduction of the surplus, but it still continues to be materially in surplus. As mentioned in the previous quarter, the surplus reduction results in a reduction in the deferred tax liabilities in the OCI. Given the large amount of accumulated losses and the deferred tax assets in Tata Steel UK, we have to limit the movement by recording and offsetting deferred tax expense in the profit and loss account, which is why you see a non-tax deferred charge in the profit and loss.
Depending on market conditions, the residual insurance of about 40% liabilities will be completed in the first half of the calendar year 2023, and there will be commensurate non-cash deferred tax expenses depending on the size of the de-risk scheme that we do. Moving to cash flows. The operating cash flow for the quarter stood at about INR 5,000 crores versus INR 1,700 crores in the previous quarter, and primarily was driven by favorable working capital movement. The working capital release was due to reduction in inventory at Tata Steel UK and Tata Steel India on account of low commodity prices or lower inventory levels. This was partly offset by increase in the slab stocks in Tata Steel Netherlands, as I mentioned earlier.
As slab stocks gets consumed over the next two quarters, we expect working capital release at Tata Steel Netherlands also over the relining period, which will be starting April. We continue to invest in growth in Kalinganagar and in Neelachal, taking our capital expenditures to about INR 3,632 crores for the quarter. The nine- months CapEx has been about INR 9,746 crores. We will be targeting to spend around INR 3,000 crores in quarter four to ensure that we accelerate the completion of the Tata Steel Kalinganagar expansion project. Our net debt has remained broadly stable at about INR 71,706 crores. The liquidity remains strong at over INR 15,000 crores.
We are not able to deleverage in this particular year due to very high volatility in the earnings and working capital. Our focus on completing the Tata Steel Kalinganagar project acquisition of Neelachal, which is about INR 10,000 crore this year, and the best ever dividends that we paid over INR 6,000 crore. Even after this, our net debt to EBITDA is within the long-term target levels of about 2. Our long-term target for deleveraging continues to be the same. We will continue to restart the deleveraging in financial year 2023-2024.
We continue to ensure that our target of 1 billion is fulfilled and met during the next year and going forward. Looking ahead, the next few quarters are likely to be weaker for Tata Steel Europe as markets continue to be subdued. The realization for the fourth quarter are forecast to be weaker and drop will be higher than the drop expected in the coal and iron ore prices. Furthermore, Tata Steel Netherlands is undertaking a blast furnace relining in quarter four of FY 2024. We are working on minimizing the impact on all of these aspects, including the working capital and margins. Moreover, there are a few specific asset challenges which we are addressing. Some of the heavy end assets in Tata Steel UK are reaching the end of their useful life.
Any long-term solution in the U.K. Also has to address the rising cost of carbon and the local emission reduction goals. The U.K. Government has provided us a framework of support for the proposed transition of Tata Steel UK to a low carbon configuration. This framework consists of potential partial capital expenditure grant, policy on electricity pricing and regulatory intent to ensure a level playing field for green steel manufacturers. We are currently evaluating this offer of support. We are developing the options, investment options, which has to be capital efficient, economically viable, bankable and value accretive, which will be reviewed internally over the next couple of months and determine the way forward. In the meantime, we will continue to run Tata Steel UK optimally for cash with minimal support from Tata Steel India.
With that, I conclude my comments. We open the floor for question and answers. Thank you.
We will now begin the question and answer session. We'll be taking questions on audio and chat. To join the audio questions queue, please mention your full name and email ID in the chat box. Kindly stick to a maximum of two questions per participant and rejoin the queue should you have a follow-up question. We will unmute your mic so that you can ask your question. To ask questions on chat, please type in your question along with your full name and email ID in the chat box. We will now wait for a moment as the queue assembles. The first question from Pinakin Parekh of JP Morgan. Please go ahead.
Where the company had effectively, you know, guided to a certain set of numbers for the operations and for the Europe operations. Clearly the earnings are far weaker than that. It seems that the profitability is lower than peers as well. Can we, can you walk us through as to what happened in India business in particular, if the cost reduction is lower than what we have seen in peers and how this will trend over the coming quarters?
Pinakin, in terms of cost reduction, I don't know if you can be more specific, but generally, one area where we had a slightly different issue in India is, we were ramping up Neelachal. You know, if you look at it on a consolidated basis, you had the Neelachal business which was incurring costs but not yet earning much revenue. That will get settled during this quarter because the production is coming up to peak, and we'll be selling. That's certainly one area. Otherwise, I don't know of any specific area where our costs have trended differently. I don't know. If you can be more specific, maybe I can try and answer.
Sure. I mean, we were just, you know, given that, the December quarter, the coking coal cost benefit that was supposed to be there, the margin expansion, was probably, you know, markets thought that it could be higher than what we had seen. Just trying to understand, was there any particular, realization of contract sales volume issue, or where, other than coking coal cost, some of the other expenditure did end up being higher than what was earlier thought in November?
When we had met in November, I think the guidance on the realizations were not as pessimistic as it turned out to be, right? I mean, if you really look, we went into that quarter, we thought the prices will have reached the bottom and start moving up, or if not moving up, it will stay stable. The realized Q3 in India has been about INR 2,000 less than Q2, right? Certainly. The margin expansion in Q3 was largely supposed to come from the drop in coal cost, consumption costs. The coal consumption costs were $90 a ton, which is what we had guided in November. We had said $90. I think we ended up close to that.
In terms of since, we had expected, we didn't expect the prices to drop as much as it did, right?
Sure.
It was already towards the end of December. Secondly, we were also hoping to get the relief on export duty earlier than when it came. You know, it came only in the middle of November, whereas we had been hoping that it would have come earlier because the steel prices in the domestic markets were still quite low.
Sure. Sure.
We actually had a pretty good quarter as far as production is concerned. I think, at least in India, we didn't have any issues.
Sure. Fair enough. My second question is just going back to Neelachal. You said that it has been ramping up during this quarter. Now if you look at the medium-term ROIC target of 15% on a INR 12,000 crore investment, it effectively implies a steady state through cycle EBITDA of INR 2,000 crores from that acquisition. When can we see that kind of earnings come through from Neelachal? Because clearly at this point of time, it is a material drag on solid earnings.
If I can, basically in Neelachal, we were a bit negative in the last quarter. Change obviously because one is we are today producing at least 50,000-60,000 tons a month, and we hope to take it to 80,000 tons a month of steel. I'm not talking of hot metal. Hot metal, the platform is already at 80,000-90,000 tons a month. Okay? We think that will go up. The billet production is there, and we're selling the product as Tata Tiscon. Next year, for instance, we will see 1 million tons of production out of Neelachal, right? In the return on investment on Neelachal was also based on the expansion of Neelachal beyond the 1 million ton.
The INR 12,000 crore valuation was not for a 1 million ton capacity, but was for the.
Sure.
If you look at a one capacity, you know, we would have been closer to what we paid for on Usha Martin or something like that, right? They are only INR 5,000 crores. What we paid of course the iron ore, which is somewhere premium, and we paid for the land, which is 2,000 tons of acres of land. That's what we paid the premium for. To monetize that we obviously need to expand Neelachal to about 4-5 million at least, which we will do. We'll go to our board in a few months, once we ramp up to 1 million tons. We were waiting for the 1 million ton operating rate to be reached before we go.
Mm-hmm.
Put more capital to expand Neelachal.
Understood. This is very helpful. Thank you very much.
The next question from Amit Dixit of ICICI Securities. Please go ahead.
Good afternoon, everyone, thanks for the opportunity. I have two questions. The first one is essentially on the non-cash deferred tax payment or, you know, provision in the consolidated numbers. Is it possible that theoretically if there is profit, you know, in Tata Steel Europe, then this can be offset at a later date? Theoretically we can get a lower tax rate. Is it that the profits have to be in Tata Steel UK for the offset thing to take place?
Yeah. I think the offset has to be in the entity which is carrying this, which is Tata Steel UK.
Okay, cool. Second question relates to the spread in TSE. While in the prepared remarks, you have mentioned that, you know, the drop in utilization will be higher than the benefits of coking coal and stroke iron ore escalation, whatever is there. Will there be any NRV provision in this quarter as well, given that prices have moved up in Europe, INR 55 million was recorded in last quarter. Will there be something in this quarter also? Will we have more EBITDA compression or will we end up with a number lower than what we have in this quarter in quarter-on-quarter basis?
I think, to answer that question first is we've kind of taken all the NRVs that we could estimate. As you know, the NRV is point to point. It is at the end of the quarter. We had stocked up slabs in IJmuiden, in Netherlands, in anticipation of the blast furnace reline. As the blast furnace reline will take about 120 days, you have to have enough stock to run the business and service the customers. This stock, which has been accumulated over the last six months almost, was on account of the fact that at that point of time the coal prices were about $450, north of $450. Iron ore prices were also high, which is why this NRV testing happened.
That's the write down of the NRV mark to market is what we have taken in this quarter. If the prices don't fall very sharply or significantly from here, I don't see any material NRVs. I can't rule out small changes in NRVs, but not nothing material in that nature. We are just now actually the other thing is, as I mentioned in my remark, both in UK and Netherlands, we're going to go run flat out for cash. If that is the case, then we are also targeting significant stock level reductions from as far as practical to run the business. The end March inventory numbers should also look much lower, hence the risk of the NRV comes down.
Great. now you know, the one specific question for this is that the annual contracts that are going to be negotiated maybe from FY23, the expectation is that they will be negotiated at a significantly lower level given that what we had in FY22. The quarterly contract that possibly you will enter with in March and or, you know, would again be at a significantly lower level because at that time Russian export was there. Last time that prices could be head over the moon. Do you expect that contract, monthly contract or quarterly contracts will be negotiated lower and therefore we can have the overhang of lower realization extending right into the first six months of fiscal year 24? That's it.
Amit, let me put it this way. The annual contracts that we had for last year, most of them were in excess of EUR 1,000 a ton. Okay? This year, when the annual contracts are at a lower level, depending on which sector, which industry, from maybe EUR 100-EUR 150 or maximum of EUR 200. They're still higher than the spot prices. That's one point I wanted to make. Secondly, you know, the spot prices are what are going up now. If you've seen it in Europe it's gone up by about EUR 50 a ton. If you look at last quarter's, and as an extension of Koushik's answer, the cost of Q3 is higher than the cost of Q2 because of these NRV provisions.
Despite the coal being $90 per ton cheaper and iron ore being $20 per ton cheaper, our cost is GBP 31 per ton higher in Q3 compared to Q2 only because of this NRV provision. When you look at Q4, we expect that the realizations in Europe will be about GBP 70 per ton lower than Q3, but we expect cost to be at least GBP 100 per ton lower on a Q3 to Q4 basis. We see a margin expansion per ton this quarter. Of course, we are still looking at gas prices and many other moving parts just now. You know, at least from a margin per ton or EBITDA per ton point of view, hopefully the worst is behind us as far as Q3 is concerned.
Going forward, the stocks that Koushik said, basically we had to build about 700,000 tons of stock. That will start getting converted into cash. While the blast furnace will be down, the sales will not be down to the extent of what production is down, and that's what these slab stocks are going to do. Since that NRV provision NRV correction has been done for the slab stocks, if the spot prices and the steel prices keep going up, we shouldn't have a problem.
Before we take the next question, I would like to remind the participants to please limit your audio questions to two per participant. Should you have a follow-up question, you are requested to post it with him in the chat box. The next question from Indrajit Agrawal of CLSA. Please go ahead.
Hi, Naren.
Yes, yes.
Okay. Hi. Thank you. I have two questions. First, if you can give us some indication as to what will be the relining CapEx and how long will the shutdown be? In view of that, what is our cash fixed cost per ton in Europe? At what EBITDA levels we'll not need support from India? That's my first question.
I think the blast furnace shutdown is planned at about 120 days. It's not the new cash will also come in, but it's a question of also ordering has also been done over the last one year. Some part of the cash has already gone out, and there will be some spend obviously as the relining happens because that's the period. It is in the ballpark of about EUR 250 million-EUR 275 million, that is the off which some of it has already been spent and some will be spent. I think if I can put it the reverse way, the Netherlands is actually sitting on EUR 600 million of cash, they don't require any money from India.
U.K. would still need the cash infusion.
That's why I said that in my comments that we would look at running it on for cash. We will minimize as much as we can. We're looking at driving it. Including in this quarter, there's almost about 1,000 crores of working capital release. We will continue to push that to a point.
Sure. Thank you. My second question is on coking coal. While we understand your fourth quarter guidance, given the news flow around the U.S., Australia, China trade opening up, how do you see coking coal prices trending on a more like six, nine-month basis from here?
I think coking coal is obviously not as liquid a market as one would like it to be and hence is very vulnerable to these fluctuations. Generally, we do see, you know, under this, what do you call it, an odd event like the Russi-Ukraine situation. Otherwise we see coking coal prices between $250 and $350. You know, it fluctuates in that range. There would be some weather event in Australia for which it may spike up or something else. We have not seen coking coal prices drop much below $250 in the short term or medium term. Honestly, there are not so many investments being made in coking coal because generally coal is seen as a bad basket to invest in.
This is where the challenge is, but I think this is the range that we can see coking coal prices. Today it's gone up closer to $350. You know, your question on China buying coking coal, well, I think one thing which China has done well is they managed for the last few years without buying Australian coking coal. You know, they managed with the quality they wanted out of the facilities that they have. They've also been buying out of Russia. I'm not sure it will make such a material difference as it would have done three, four years back because they've developed alternate sources over the last few years.
Sure. Thank you.
The next question is from Satyadeep Jain of Ambit Capital. Please go ahead.
I, thank you. A couple of questions on Europe. First on the profitability. Maybe a couple of years ago, the company was embarking on transformation program. At that time, the thought was that if these spreads of EUR 4-40 per ton, the company was looking at making cash. Given the current spreads are also about EUR 200 per ton and not EUR 2,000, at least there was the company should have been possibly be at least EBITDA positive even. Is there something, maybe it's the Europe, the UK plants reaching end of life or is there anything else going on that is leading to the deviation from the targeted transformation plans? That's the first question.
Yeah. Satyadeep, I think, two things. One is, of course, our traditional view of spreads now needs to get corrected for energy costs and gas costs. Traditionally, energy and gas and carbon together was less than 10% of the raw material costs. Whereas it went up last year to almost 40%, right? It played a very material role. Now it is coming back to around 10%-20%, so it's at a more reasonable level. That is one thing. That's why what we had traditionally seen as 225 and 250 EUR spreads, we're assuming that gas and energy prices won't be as high as it is today. That is one change.
Second point is, if you really split the UK and Netherlands, the Netherlands business has traditionally been EBITDA positive, cash positive for sure every year, and pretty much all quarters. Last quarter is one of those quarters where it was EBITDA negative, but largely because of the NRV provisions that we had to make on the slab stock, which itself was unusual situation as a builder to the blast furnace shutdown. UK is where we have a challenge because energy costs have always been high and it's become even higher. We have some challenges on end of life. What happens in an end of life situation is the production levels are also not as stable as we would like it to be, and that leads to unplanned outages. That's something that we are dealing with.
A lot of the underperformance has been in UK for the last quarter. The Netherlands also has not had as good a quarter as they would normally have. We expect in Netherlands at least, you know, obviously, operationally this quarter is time, but next quarter we have this blast furnace relining. After that things should come back to a stable state in Netherlands. The UK situation is slightly different. Cost situation is improving in both these places because the energy prices have come back close to pre-Ukraine levels. That's the way we see it. I think Netherlands should continue to be cash positive and EBITDA positive and should not need support from India. UK is what Koushik said, we will take a call going forward what best to do.
Sorry, to come back to that. Yes, it has, you know, it has given us the numbers that we were chasing. You should also keep in mind that Europe is today in a high inflation environment. The inflation is much higher than what we had thought two, three years back, and that also has an impact on costs. Even if we have taken out a lot of costs, some of the costs, because of inflationary pressures have gone up more than we had planned three years back.
Understood. The second question is on CapEx. Between $50 million-$75 million for relining. I am just, I think I am under the impression that this is going to be a partial relining given the eventual transition to DRI sometime in future. Is this CapEx of partial relining seems somewhat high? Secondly, on the media reports indicate possibly a $1 billion plus requirement for conversion for U.K. If I understand you correctly, the idea is to convert into standalone EF given the slab supplies there. The CapEx required for the standalone EF should be, I believe, much more than those media headlines. Is there a thought behind maybe not just looking at standalone EF, but possibly exploring other options there? That's another question on CapEx.
Yeah. On the relining, depends on if you're comparing to a relining cost in India or something, obviously some EUR 75 million looks high. If you compare to what relining costs in Europe, it's comparable. Having said that, this blast furnace is expected to run at least till 2035 even in our transition plan. That's why this is being relined for that kind of a life. The blast furnace which will go down first will be the blast furnace which is coming up for relining in 2026 or 2027. We have two blast furnaces in Netherlands. This is being planned to be run till 2035 even in our transition plan. Okay. That is one point.
As far as U.K. is concerned, the media reports on the numbers are speculative. I don't want to comment on that. Having said that, the proposal to the government was not just about an EAF, but it was also about the hot strip mill, which was also coming to end of life and some of the other assets which were important to keep the site sustainable. That's why the amount was more than what you would spend typically on an EAF. Given what we've got from the government, we are looking at what then could be the next best thing. What is the best that we can do with that kind of money that may be made available to us and the, you know, policy support that we will get from the government.
I think this is what we are working out based on the recent inputs that we've had from the government.
Thank you.
Next question is from Ashish Jain of Macquarie. Please go ahead.
Ashish, we are unable to hear you. We request you to please send in your question via chat. We will take it up in the chat question section. We will now move on to the next question. The next question is from Ritesh Shah of Investec. Please go ahead.
Hi, am I audible?
Yes.
Yes. Hi, sir. A couple of questions. Sir, first is can you broadly give us some color on the assets that we have in Europe? I think in the prior question you indicated there are two furnaces in the Netherlands. One, what is due for relining it will be till 2035. The other blast furnace, it has its relining due by 2026. Is that right?
Yeah, that's right, 2002- 2027 from the time.
Correct. Sir, how should we understand the same aspect for the UK operations wherein you indicate there are many assets reaching end of useful life? If you could please put in perspective what you indicated that the framework that you are engaging with the UK government on practical grant level being created. I don't know whether it refers to CBAM or something else. If you could marry both those verticals together, it would be great, sir.
Sure. In U.K. if you look at... One of the blast furnaces in the U.K. got relined about five, six years back, okay? Or maybe 10 years back. In 2012 I think it was. Typically a blast furnace once it's relined will run for anything from 15 years to 20 years. There is one blast furnace which can go on for slightly longer, the other is due sooner. More than the blast furnaces in the U.K., it's a coke ovens, it's a premium shop. There are many parts of the U.K. business which where the assets are a bit old and needs support.
That's where our proposal to the government was to say that instead of spending capital on assets which anyway don't have a very long-term future, you know, why don't we use that opportunity to transition into a greener process route? Particularly given that the U.K. has a lot of scrap which is exporting. The challenge there was the energy cost in U.K. even before Ukraine was twice the energy cost in Europe. Our ask of the government was 50%, at least 50% of the CapEx that we need to spend should be supported and there should be policy support on energy costs so that we are not, you know, disadvantaged compared to Europe.
You know, thirdly of course, the policy support that European steel companies are getting in terms of Carbon Border Adjustment Mechanism, et cetera. The ask in general in Europe by steel companies of government is typically on these principles, that at least 50% of the CapEx that is required should be supported as grants. Because the industry through its cash flows cannot justify spending all the CapEx that it needs for this transition. Secondly, OpEx support because when you transition from coal to gas and hydrogen, your input costs are less dependent on steel prices. When you're looking at metallurgical coal, there's a correlation between the metallurgical coal price and the steel price. When you're starting to use gas and hydrogen, the correlation is not there because gas and hydrogen are used for other applications as well.
The ask of the government is to also say that how do you protect the industry if it's changing from one consumable to another which is more vulnerable to other industries. The third point of course in Europe is about the Carbon Border Adjustment Mechanism. The last point is that we are also saying that there should be a level playing field, not only in terms of Carbon Border Adjustment Mechanism, but if there are some countries in Europe supporting their steel industry with let's say 50% of CapEx, the other countries also need to consider that. Otherwise at the end of the transition, some of the steel companies in Europe will be disadvantaged compared to somebody else who got more support from the government.
That has also been an ask on the principle of support, and this is what is actually being discussed by us and our peers with the multiple governments in the countries that we operate in.
Right. Sir, thanks. Thanks for the details. Sir, if I had to conclude on that point, what is the aspirational ROI? In the presentation we indicate 15%. For standalone, whatever we do for UK operations, even factoring 50% hypothetically the government does contribute to the CapEx. What is the ROI that we are looking at corresponding cost of capital? Just trying to make sense of the incremental ROC.
On that case it's more linked to the cost of capital. What works for in India for example our WACC hurdles are more around 12%. In Europe it will be around 10%, 9%-10%. That's the IRR hurdle for approval of CapEx. The ROIC that we are looking for is always at above 15%.
Sure. That's very useful. I had a couple of questions for India operations. First is, do we see leeway to increase local steel prices? I'm more referring to from an import parity map standpoint. Second is volume guidance if it's possible on FY 25 basis given I think the street will start to look at the company on 25 basis. Third is specifically iron ore merchant sales. Is there a optionality that the company has over here? If at all, if you could detail any plans on this particular aspect. Thank you so much.
Yeah. I think the steel prices, it's in India is also reflecting the trends in international prices. If you look at prices in Southeast Asia, they've gone up $100 in the last four weeks. Steel prices in India, you know, we expect it to go up by that amount over January, February and certainly by March. That's something which is mirroring what's happening in international markets. The demand in India has been strong. There was in between a few shipments of import which came in from Russia, et cetera, I don't see imports as a big threat just yet. In between, Japan was exporting a lot because the yen has gone to JPY 145. The yen has also strengthened.
I think we are in a much better situation today as far as import threats are concerned than we were two, three months back. I also think in any case, the steel prices in India need to find a better balance than we've seen in the last, three, four months. I think that's reflected in the financials of the steel companies over the last, two quarters, right? Particularly if the industry needs to invest for growth, we need better cash flows than we've got in the last, two quarters. That's as far as steel prices are concerned. Sorry, what was the...?
I think there was a question on volumes.
Yeah.
Today, as you know, we don't give annual volumes in the December at this time. We will do that once we finalize our annual plan. Maybe if you can just walk in through the broad sense of the.
Yeah. In terms of volumes next year, you will see Neelachal at full 1 million. You know, we've not seen much of Neelachal this year because we started the plant within three months of acquiring it. Pretty much the steel making started in November. You know, we have today, in fact, yesterday was the highest ever production that Neelachal has ever had. We produced 3,200 tons of steel yesterday in Neelachal. That means the going rate is already at the rate of capacity, right? That is the incremental volume should slowly come to that next year. We will also get some incremental volume out of the Kalinganagar. We have a new caster coming in that should be up.
Kalinganagar also, today is actually producing at over 300,000 tons a month, which is like 3.6 million tons rate. We'll get some additional volumes from the caster. We'll give guidance, you know, when we do the annual results. Through some debottlenecking, we'll get some volumes out. How much more we will guide you in the next call. In two years, we will have the Ludhiana plant also up, which is 0.75 million tons. By which time the Kalinganagar blast furnace should have also started.
The next question is from Hiten Mehta of BOB Capital. Please go ahead.
Thank you.
Yes.
Just continuing on the previous question, you've given some color on FY 2024 numbers. Could you give some more color on FY 2025, which is likely to be the valuation base for the stream? Could you walk us through the ramp-up sequence of Kalinganagar expansion post-expansion? How long would it take to ramp up to a full capacity?
Next year what you will see is, firstly, the pellet plant would have ramped up by the end of the first quarter, which means we don't need to buy any more pellets, which means there's a cost saving for Tata Steel. Secondly, the cold rolling mill, not the galvanizing line, but the cold rolling mill will be ready. We will have what we call full hard CR, which can be sold. Basically, the hot roll coil gets converted into cold roll. There's no incremental volume, but there's incremental value which comes in from that. Like I said, if we have the new caster in by the middle of next year, we will get some additional volume from steel make because today we make more hot metal than the steel mill shops can consume.
These are the areas where you will see the ramp up. The blast furnace of Kalinganagar should come up only in FY 2025, and that's when you will see the ramp up. Typically, blast furnaces ramp up fast unless you have a problem. The hot strip mill and the steel mill shops would also be ready. Once you have the blast furnace making hot metal, ramping up the steel mill shop and the hot strip mill is not an issue. If you remember, the Kalinganagar phase one ramp up was one of the fastest for any greenfield site. I think we did it in about 16 months, the full ramp up. That's typically what it could take.
You know, we should keep in mind that it's going to be one of the biggest blast furnaces in India. We will obviously ramp up, keeping the complexity of large blast furnaces, in mind.
Thanks for these details. One more question from my side. If you look at the Tata Steel and its subsidiaries, there is trade which has opened up to around 12% to 15% if you take the conversion ratios in account. In fact, if at all we back look it from this perspective, it would be market is pricing something like 1-1.5 years for a merger to consummate from this angle. Do you think that that's a fair estimate by the market, or do you see the merger progressing bit faster than that?
Hiten, I think we are at a stage where we have done the filing through the SEBI and regulators, and we will be looking at getting their clearances. Since some of them are listed companies, I think a year is the ordinary course of business of the NCLT, we should be able to do that. I don't see 1.5 years. In Bhushan, we got delayed because of multiple reasons. These are subsidiaries which have been in our fold for long. We are hoping that we can close it before one year.
I would now like to hand over the conference to Ms. Samita Shah for the chat questions. Over to you, ma'am.
Thank you, Hitesh. I'll start with the questions on India. We have a question on auto. You had said that auto sector is about 15% of our volume. What would be the growth trajectory going forward for the company as an average? What is our targeted mix on the auto sector for FY 2025?
Obviously our growth in auto will depend largely on the pace at which auto grows because we already have a 50% market share and normally auto companies like to buy from at least two suppliers, if not more. We are not looking at a much higher market share than we have today. Our growth in volumes will largely depend on the growth in auto sector. Having said that, once the cold rolling mill with its galvanizing line and the annealing lines comes in in full, you know, what is coming up just now is the, what we call the Kalinganagar, which is basically the cold rolling mill. The annealing and galvanizing facilities will be commissioned over the next 12-14 months. Once that comes in, you will have a lot more to add to your product mix.
While we have a very high market share, let's say, in automobile coils, which is over 55%, 60% in some cases, in cold roll and galvanized, we are in the 30%-40% range. There is a room for us to increase our market share in the galvanized, high-end galvanized and cold rolled, and in products which we will do over the next three, four years. Overall, if you look at it, auto will always account for 15%-20% of our overall volume. The other sector which is quality conscious that tool-based which we are pursuing in a big way is oil and gas. I think the Kalinganagar plant is ideally suited for the oil and gas segment, and we are making a lot of headway there.
We expect that also to account for a big chunk of our value-added sales going forward.
There are some questions on the volume guidance that I think we answered it earlier, so I won't go through that. There's a question on iron ore merchant sales.
Oh, yeah.
Why do we not do some merchant sales if the optionality is available?
That optionality is available with the requisite permissions that we need to take, which we've taken. We are doing some iron ore sales, but largely our iron ore is meant for captive use, because what we are producing, we are consuming. Once the pellet plant is starting, we will be using more iron ore for the pellets so because we don't have to then buy pellets. But having said that, whenever there is an opportunity to auction iron ore that we can't use, because of the grades or because of the, whether it's fines or whatever, then we do that. I think one of the challenges today is not so much about auctioning it, but about the logistics of it.
I think, we have done quite a few gigs of iron ore in the last 20 months. Not yet so material, but yes, it has started.
There has been a question on RINL disinvestment. Given our deleveraging target for 2024, year 2024 and ahead, can we confirm that we are not doing that for these assets?
I think what we've always said is our existing sites allow us the runway to grow to 40 million tons, right? I think our growth ambitions can be fulfilled from our existing sites. It will be premature for us to emphatically say yes or no because this is a competitive environment. You know, why should we announce what we want to do or won't do ahead of when we need to do it?
There's another question on India, which is, can you give us, you know, 16,000 ton, 16,000 EBITDA per ton for Q4? As you all know, we don't give out quarterly guidance. We will not comment on that. Moving to Europe, there's a question that do we expect steel prices in Europe to benefit if the CBAM proposals are implemented?
Yes, certainly. Because, you know, we should keep in mind that in Europe today we pay EUR 80 per ton for CO2. I mean, obviously we get free allowances. Even despite that, I think we pay something like EUR 100 million a year.
Doesn't cover fully.
Because the free allowances we get are not, doesn't cover our needs fully, right? That's a cost at least we are paying and everyone else in Europe is paying today. As those allowances, free allowances go down, you'll pay more. That's why there is a CBAM, because if somebody can make steel, which is more carbon inefficient and ship to Europe because the cost, that's very unfair on the European steel industry. If you look at Tata Steel in Netherlands, it is the second most carbon efficient blast furnace in the world. It emits about 1.8 tons of carbon per ton of steel. For a blast furnace emitting that kind of carbon to pay 80 EUR per ton carbon cost and somebody who's, let's say, 2.5 not paying that cost, is certainly unfair.
We expect that CBAM will come in. We expect that steel prices in Europe will reflect the costs in Europe, you know, because some of those costs are unique to Europe and the industry will need that support.
Then the question around the energy costs. Given that the states have been, or margins have been affected by coal costs and gas costs, could the company please report that line separately under expenses for both Europe and India? I think, just to comment, but I would just say all of you know that, we give a lot more information than any other steel company in the world actually or any company in terms of the profit and loss details. That is, a question.
It will get covered in the MD&A when you look at the annual numbers.
The next question is, comment I think. Are we regretting not considering divesting our international business when situation was favorable? Will we revisit this in the next upcycle?
It's a hypothetical question.
Yeah. More of a comment. I think there is a question around debt reduction. When do you expect the debt reduction in Q4 or FY '23?
We've actually in this third quarter itself, we've prepaid about INR 3,000 crore, but it got offset by the currency valuation. My principle that I can articulate as a company is we will look for all opportunities to reduce our debt. As I said in my comments that completion of Kalinganagar is a priority, but deleveraging is also a very important priority. Whenever we get opportunity, we'll do so. We do have some scheduled repayments ahead in 2024, Q3 2024 coming up. There will be a natural deleveraging itself. Whatever we get from a surplus cash generation, we will look to prepay our leverage.
With the question of possibility of Europe for 14, your commentary suggested that the data for plan will further weaken over third quarter. Can you please clarify?
I think we said it will improve compared to third quarter because while I mean, our current estimate is the realizations on an average for Europe will be GBP 70 per ton lower in Q4 compared to Q3, but the cost will be about GBP 102 per ton lower. We are watching all the costs very closely, including gas prices, energy costs, which have dropped significantly over the last few weeks.
The next question on Europe is on U.K. What is the way forward on U.K. given the package is inadequate? When can we see some concrete steps that you will take?
I think we are, as I mentioned in my comments, that we are looking at, a optimal model which is, investable, bankable and fits the need of the company. This is not a Excel model analysis, it's an engineering analysis, and it's a technical analysis which is underway. We've been doing it in the past when we looked at, as what Naren mentioned, as the broader configuration. Given the current offer of the UK government, we will look at it. We've already started looking at it, and, we will, come back to our board and take guidance from that. It will take a little bit of time, but not indefinitely.
What is the kind of annual contract negotiation in Europe? Can you give us a sense of how different it is?
Compared to previous?
Yeah.
Yeah. Yeah. Like I said, it's depending on the industry, it's I think in the range of EUR 50 to EUR 150 to EUR 200, in that range, lower than last year's annual contract prices. Most of last year's annual contract prices were higher than EUR 1,000 per ton. I think it will be EUR 850-1,000 range is what we see most of the contracts for this year, which is lower than last year but higher than today's spot prices.
The next question is on Europe in terms of the investigations around environmental issues. Can you please shed us some light?
I think, largely it is to do with our operations in Netherlands. you know, obviously we, you know, responding to the various notices that we get, et cetera. There are issues related to the coke plant there and the emissions out of the coke plant. you know, and a few other instances of the past. What we have done over the last few years is, one, is of course we have a roadmap to continue to improve the situation. Having said that, I must also say, like I said before, that our Dutch plant is certainly one of the cleanest steel plants in the world. We are conscious about the feedback from the community and from the regulators and constantly trying to improve the facilities that we have there.
You know, that work goes on. There are obviously investigations going on. There are questions being asked which we are responding to. We are cooperating with the authorities and doing the best that we can. Having said that, I think we are a responsible corporate and we will do whatever is the right thing to do.
Okay. One question before we go back to audio is on the products gain this quarter. It's quite a large amount. Can you please explain its impact on EBITDA?
This is something which happens every quarter actually. There are gains and there are losses. There is a Tata Steel investment in Tata Steel Holdings, which is the holding company in Singapore for. It is done through a debt mechanism. Whenever there is a FX movement every quarter, it is adjusted. Sometimes it's negative, sometimes it's positive. This quarter, as I mentioned, euro dollar and Euro INR movements have been quite volatile, resulted in an FX gain and that's been accounted for in the earnings.
Thank you. We'll go back. I think we have a few analysts for the audio questions. We'll go back to you in future. Thank you.
Thank you, ma'am. Moving back to the audio questions. The next question is from Sumangal Nevatia of Kotak Securities. Please go ahead. Sumangal, we are unable to hear you. We request you to please send in your question via chat. We will take it up in the chat question section. We move on to our next question. The next question is from Tarang Agrawal of Old Bridge Capital Management. Please go ahead.
Hello, am I audible?
Yes.
Yes.
Hi. Three questions from me. Two on Europe and one on India. On Europe, given that your current contracts have been priced at anywhere between south of EUR 1,000 per ton. If I look at, you know, the total cost, even if I eliminate the NRV of EUR 55 million, the total cost, at least for the last four, five quarters, has been trending north of, you know, EUR 1,000 per ton. Is there something that I'm missing here or from the point of view of how it's gonna play out on a % basis?
It's only more than EUR 1,000 a ton.
Yeah.
I mean-
Can you-
We'll have to get-.
Maybe we can connect because I think the question is not actually very clear. The numbers, we're not able to identify.
I mean, I don't see the cost in Europe at more than EUR 1,000 a ton.
Yeah. I'm not sure where that's coming from.
Okay. I'll take it offline. The second question is how tangible
Sorry. I just, the only thing I can think of is we have a lot of downstream assets in Europe. I don't know if there's any confusion on those costs versus those realizations. Anyway, we'll think about it.
Yeah.
maybe Samita can clarify more specifically.
I will. Second, how fungible is the cash between Netherlands and U.K.?
In the past, we when we used to run as a Tata Steel Europe, we used to use it in a very fungible manner. Given the fact that Tata Steel Netherlands has a decarbonization project ahead of them, we are kind of escrowing and ensuring that we have that capital because that will be a very material investment that has to be done in TSN. Otherwise cash moves freely across all entities.
Okay. My third question was on the end business. Between DPR, downstream, IPP and automotive, if you could give us a flavor in terms of how the realizations are different.
You know, in terms of realizations, automotive contracts, the tenures are different of these contracts, right? If you look at it, the automotive contracts are typically three months to six months, depending on the customers. Now, if you have a rising market, the auto contracts look less attractive because the spot prices have gone up above the auto contracts. In a falling market, the auto prices will look better. That always happens, particularly when there's a lot of volatility. Fundamentally, the reason why we pursue auto customers is that they are not price buyers. You know, they look for buying from suppliers who are approved, right? That means your competition is limited to whoever has the approval for supplies.
That's why, segments like automotive, oil and gas are attractive because you're not reacting to stock prices moving up and down. IPP is where the volumes go because you have a large number of large customers, maybe tubers, earlier cold rollers. Now, there are not too many cold rollers who buy auto coils. They are all integrated. These are the volume plays, plus you have a value-added play in that. Downstream business for Tata Steel is very big. There our policy is more on transfer pricing, which is based on on-site basis, but there is obviously a lag.
If you look at some of the price increases that we take this quarter, by the time it passes on to our teams division or the template company, on our on-site policy, transfer pricing policies, you know, it may be one or two into the quarter or at the end of the quarter. There is a lag between that. Again, we see downstream like auto gives us stability in the business. IPP is more the one which you will leverage, you know, when the, you know, the stable businesses are picking up less volumes than we would like to sell them. Margin hierarchy. Margin hierarchy to answer your question, I would say on a long-term basis, auto and downstream should rank over IPP.
Please go ahead,Sumangal.
Sumanta this time?
Yes. I can hear you.
Okay, thanks. Thanks. Okay, first question is just some clarification on the UK topic. The entire transformation from BF to EAF, what is the estimated CapEx we are looking at? What is the plan to fund the remaining 50%, assuming we get a 50% grant from the government?
I think, if you have heard Naren a little while back, our original ask, was for a configuration which had an EAF and also the downstream TSCR or the thin slab caster. They were in it. That all was the configuration that we were discussing with the government. We said for that we need to get a 50% support. I think what the government has given is partial of what our ask was, and therefore we are re-looking at what should be the resizing of the configuration, if to make it, investable and bankable and value creative. I think these three are the foundations of what we are looking at.
I don't think what we had asked for, has happened and therefore the original configuration is to be rethought.
Understood. Koushik, is it possible to get what is the ask in terms of billion dollars?
No. At that point of time, it was multiples of the 300 which we had got. I think, let us not look at that because it's no longer relevant. What is relevant is what we will now work on and are working on and which matches up to the partial grant that the government is willing to give. Go back to the government saying that this is what we can do at best.
Okay, got it. Given that, the U.K. doesn't earn any free cash flow, I mean how will the remaining part be funded? Will they raise debt or will there be some support from India entity?
No. That's why I'm saying that when we do the capital allocation, when we say for example say that this year's capital expenditure is say INR 12,000-13,000 crores, et cetera, we take every entity into account. It's not an India alone. I think we... This is going to be almost like a new investment. It's not putting money into any current assets. This will be, as I said, the financial closure of it will have elements of government support. We have elements of Tata Steel support. Something if the existing business can give or cannot give, then it will be externally funded. This will be a combination, but I yet don't know what will be that configuration. Let's work towards it and then we will certainly come out and talk about it.
Got it. That's very clear. I mean, just hypothetically, if it's possible to discuss, what could be plan B here? I mean, we've been in discussions with the government since more than two years now. Is there a fixed timeline we are looking to close this? What is plan B? Is divestment or shutting down the plan an option for us?
There is a plan B, there's a plan C, but I think, unless we cross the hurdle on the plan A, now that the government has given us a formal proposal or a formal support structure, let's work on this and see whether we get to that. Otherwise, there are consequent plan Bs and plan Cs that can go past. I think to be honest, whatever we do, we also need to discuss with the other stakeholders there, the unions and everybody else. It'll only be fair for us to, you know, internally discuss before we announce whatever we want to do. Yeah.
Okay, sir. Before we take the next question, I would like to remind the participants to please limit your audio questions to two per participant. Should you have a follow-up question, you are requested to please post it in the chat box. The next question is from Anupam Gupta of IIFL. Please go ahead.
You have answered this. What is the outlook for LSR and coal cost for India operations for the next quarter, for this quarter that is, fourth quarter?
It must be realization. Yeah.
Realization, yeah.
The net realization for this quarter in India, we're expecting it to be about INR 1,400-INR 1,500 per ton higher than last quarter. I say this because while from December the prices have been going up, I'm looking at average of last quarter, because October prices were quite high, average of this quarter. That is one. In terms of coal, the coal costs are expected to be over $10 on a consumption basis, about $10 per ton lower this quarter compared to last quarter. The other point I want to make is, this quarter, between Europe and India, we'll also have about 500,000 tons of additional volumes compared to last quarter.
Okay. Just one more question. I understand that profitability in U.K. will improve in this quarter versus last quarter, what you have highlighted. Let's say over the next one year before your any transformation cases happens, do you think it can go back to, let's say, cash neutral situation or you'll continue to have some support coming from India or let's say local level debt coming in to sort of figure out?
Yeah. No. I think we didn't say it will improve. I think what Naren covered was it will not worsen is the point. As he mentioned, and I mentioned earlier also that we're coming to the end of life of some of the critical facilities, which will mean that there will be challenges and costs, and we are trying to run it in a most optimal manner, which will require the minimal support from India. That is what our target is till we come to a decision which is relating to what we have discussed fairly at length in this call on how do we look at the future of our two cases.
Just to clarify Koushik's point, I said we improve, but we'll not be out of the woods.
Yeah.
That's what I said.
Yeah, understand that. That's absolutely clear. Yeah. Thank you.
Thank you, sir. Next question is from Sumangal Nevatia of Kotak Securities. Please go ahead.
Hello?
Yeah, Sumangal.
Yeah, sorry. Just one pending question. I mean, when do we expect the commercial volumes from KPO to visit, one at 25 or more like second half of FY 2025?
No. Firstly, from next year you will have the full RCR, which is also part of the commercial volumes of KPO. We should keep in mind that this is value added to existing hotel points. It's not incremental volume. Let me put it that way.
Yeah.
Incremental volume will come from the from FY 25. Some of the incremental volume will also come from the second half of this year simply because we'll have an additional customer in the steel mill shop. We are still working out the volumes that will come out of it, and we will give you the guidance in the next analyst call. Starting from this year, but most of it will start coming from FY 25. Whether first half or second half, I think we'll give you guidance when we meet, when we talk the next time.
Got it. Just one last question. Europe, I mean, in the past you've said that $50-$60 per ton at the entire Europe level is very cash break even considering the CapEx, maintenance CapEx and interest obligations. I mean, when do we see we reaching to that level? Is it more towards the end of FY24 or more like in FY25 as we see today?
When you say Europe, I think Netherlands is for to what you just mentioned. As far as UK is concerned, levels are somewhere a little higher than that. Netherlands has always been EBITDA positive, cash positive. I think last quarter was an exception of being EBITDA negative. If the country is on annual basis, even last year and next year they will be EBITDA positive for sure. In terms of cash positive, of course next year we are gonna post nineteen. Yeah. Netherlands is not the challenge. The challenge is obviously in UK.
Got it. Thanks and all the best.
Thank you.
The next question is from Prashanth Kota of Emkay Global. Prashanth, please go ahead.
Debt stable QOQ despite the challenges. My question is, I think, more on the coking coal side and the structural issue over there. You have been used to buying this coking coal and for very high prices and in fact Sorry for that word, but arm twisting question by the other side. Sir, if you take a step back and just look at it from an outsider, 3 steps back actually as an outsider. Sir, this is supposed to be a mutually mutual long-term relationship in which both parties need each other. Here it is. This thing is completely one-sided. Also I believe the 90% of the volumes are sold on, linked to the index.
Where the index is decided by the 10% of the spot volumes. This seems to be some sort of an anomaly. What can we do to take a step back and say, collectively we as in Tata Steel, as a leader, not only in India, as in Asia, also in Asia, because we are also a poor region. To collectively take a step back and say, "Okay, we need coal. Coal guys need steelers. There's a coal, they buy after making some profit on the same." Can we have a new dialogue or new system of pricing this as in, "Okay, we can pay you this much based on what you have made in the last quarter, last couple of quarters." Something like that is a way we have been negotiating with auto guys.
You know. Sir, what is your thinking on this actually?
I think it's obviously in any commercial free markets, the power will shift from the customer to the supplier or supplier to the customer, right. When steel prices go up, we get a lot of noise from our customers saying that, you know, it shouldn't go up. I think in some sense, if you look at the coal companies, they will tell you the same thing, you know. The issue is that coking coal is not a very liquid market, unlike thermal coal. It's a very consolidated market. What is also happening is you have the big miners and you have the smaller miners. The smaller miners are not getting the funds that they used to get earlier, the financing or the insurances that they used to get earlier.
Coal in general is seen as a bad word, without drawing a distinction between thermal coal and coking coal. You can theoretically do without thermal coal, you can't do without coking coal for at least the next 30 years, right? There is a situation. For India, we are very dependent on Australia as a source. We are vulnerable to weather or climate events, that makes the liquidity even worse. 2 years back we had a problem with the railways there. These events happen which swing the coking coal prices. The point you made about the indexes, a point which the steel industry globally has taken up, both in Europe and in India, saying that the index or most of our contracts are indexed.
That index we feel is not truly reflective of all the transactions in the market. This is something which is being discussed with the people who create, you may issue the index as well as between suppliers and customers. I think, yes, we have a good long relationship with many of the suppliers. They seem to be doing what is right for their shareholders and we are doing what we think is right for our shareholders. I think we obviously have to find that balance. The challenge is going forward, this is not a sector which is getting a lot of investment for growth because of the fact that it's coal.
India is already the largest importer of coking coal, and India's steel capacity is going to double over the next 10 years and will double again over the 10 years after that. Till such time we have enough gas or hydrogen as an alternative to coking coal, we will be vulnerable to the volatility in the coking coal market.
Okay. Sir, understood. Sir, even now, without any weather event or et cetera, they're gunning for like 60% of that Asian benchmark steel price. They've always wanted 50%-60%. Ideally it should have been 25%-30%, you know, for everybody to, you know, let them make more margin. No problem. Let them make more ROC there. No problem. It should not be that they are making very, very handsome and making suboptimal. That is the only concern. We have a mutually, you know, mutual relationship long term. That's the only point I wanted to raise. Sir, apart from that, the net NRV losses and inventory losses across India and Europe, if you could quantify that, please. This quarter, how much was that? INR 1,000 crore.
There was no NRV on as far as India is concerned. There was NRV to the extent of about EUR 55 million in the as far as Europe is concerned.
Understood, sir. Thanks, sir. Thanks and wish you all the best.
Thank you.
The next question is from Arpan Gupta of IIFL. Please go ahead.
Yeah. Sir, I had one question on iron ore sourcing for you. You have that iron ore mine at NINL. Including that and the other mines which you have, can you just lay out how iron ore sourcing will change over the next five, six years? Also include, let's say, one to existing mines, how do these get sold in 2030?
Basically, our desire is not to buy any iron ore, and we've not been buying iron ore. We've been buying pellets. We are, we have enough iron ore to take care of our iron ore needs, but we didn't have enough pellets to take care of our pellet needs. With the pellet plant coming up in Kalinganagar, which has already come up, and over the next few years we'll build another pellet plant in the Angul facility, which is a Bhushan facility, we will be self-sufficient in pellets. Hopefully from the second quarter of the next financial year we shouldn't be required to buy any pellets. We want to keep it that way. The annual expansion is being planned to keep pace with our steel expansion, that will continue.
As far as post 2030 is concerned, as of now, we have about 550 million tons of iron ore reserves for post I mean 2030. We have the Gandhalpada mine, which is a greenfield mine which we bid for and got. Which we will develop at a pace that will be needed. We have the Kalamang mine which came to us from Bhushan. The Neelachal mine which has come to us with the Neelachal acquisition. There's also the Keonjhar mine in Jharkhand which has come to us with the Usha Martin acquisition. All this put together, we have at this moment about 500 to 550 million tons for post 2030. We will continue to participate in auctions as they come up going forward.
We will also have auctions on our existing mines and bid out for auctions in 2030.
Okay. Okay. That's it, sir. Thanks a lot.
Thank you very much. That was the last question for today. I would now like to hand the conference back to Miss Samita Shah for closing comments. Over to you, ma'am.
Thank you, Kinshuk. Thank you everybody for joining us for this call. I hope you got your questions were answered and found it useful. Look forward to connecting again at the next call. Thank you and bye-bye.
Thank you.