Posted on 09 Mar 2020
Tata Steel has decided to reduce its dependence on China for some key steelmaking inputs in the wake of the Covid-19 scare.
The steel major said it is tapping alternative supply sources in Turkey and Brazil.
Tata Steel’s decision is part of an overall global trend whereby corporates are focusing on a strategy to de-risk their supply chains from China.
De-risking started with the US-China trade dispute and accelerated with the spread of the coronavirus. “We reviewed the situation arising in China due to the virus outbreak in the initial weeks. While we do not depend on China as a market for steel, we do source some of our consumable items from it. We are thus trying alternative supply sources in places like Turkey and Brazil,” said TV Narendran, chief executive, Tata Steel.
The consumables include manganese, refractory products and compounds, electrodes and rolls for steel mills.
“The jury is still out on how bad the outbreak is. The virus situation is expected to play out over the next two-three weeks. We are comfortable with our supplies until April,” he added. Narendran said the additional cost of switching to new suppliers from existing approved ones is likely to be offset by the cost of any potential disruption in supplies of such consumables since they do not account for a substantial portion of steelmaking costs.
The only concern for the steel industry is the build-up of some 20 million-30 million tonnes of inventory in China in the aftermath of the Covid-19 outbreak, Narendran said. This output could find its way into export markets.
However, it is being felt more in South East Asia, where prices have already come under some pressure.
The impact of the virus is less in Europe, barring Italy, where it is a concern; Germany is stable, he added.
India is relatively less affected as the local activity is coming up from a low base.
“We are seeing a pick-up in construction of commercial property and industrial buildings, especially warehouses, post-GST (goods and services tax). However, construction of residential properties continue to remain shaky, which could change with the step-up in affordable housing,” he said. However, there is no recovery yet in the domestic auto sector, a sentiment driver, as autos account for about 15% of steel demand, Narendran said.
Source:The Economic Times
