Steel prices are likely to remain tight in the current year, ac-cording to Tata Steel's managing director, H M Nerurkar. The main reason for this is the overcapacity in the global steel industry.

In an exclusive interview with Bloomberg UTV’s Editor-in-chief Govindraj Ethiraj, Nerurkar said, the steel demand in India has been consistent.

Edited Excerpts:

It's been 37 long years in Tata Steel so far, what were you like when you joined, what were you looking for and what were your expectations when you joined as a young management trainee in Tata Steel?

Nerurkar: Well, I joined the R&D department and I don’t think I had any great expectations except to reach somewhere higher up in R&D at that time and that was what I understood about the business. As I went along, definitely the perspective changed, the Indian economy changed. It was very different in the 70s and mid-80s and today it’s so significantly different and as I went along my ambitions certainly grew and this is the end result.

When did the significant changes start happening in your career? When did the company start changing and when did the growth start coming in?

Nerurkar: There were two big steps, one was when the company got permission to grow and modernise in 1981 because from 1958 till 1979 we did not get any permission to change, grow anything and that was the control time. But after the 90s when liberalisation took place in the country, then we had studies by Arthur D Little and McKinsey at that time. The Arthur D Little study especially was quite a detailed one and it showed us in very poor light and the conclusion was that we were just not ready for the new world that India was entering into.

So immediately afterwards, a flurry of activities started; some of them short term and some long term, I think that’s what helped the company a lot.

How much of steel making today is passion?

Nerurkar: There is lot of passion but percentage wise it will be very difficult to say. There is plenty of passion in the way we operate... The raw materials, the plant, the customers and the difficulties we have in improving our customer services because we happen to be in eastern India and most of the important customers are in North, South and West, 1500-2000 kms away and yet we have to be as good service providers as anybody else, so the coordination across the country, unless you have a common goal, passion is extremely difficult to achieve, so there is plenty of passion in whatever we do.

Does the young generation of today perhaps fail to experience the same sense of passion that your generation did?

Nerurkar: True! For quite sometime, the image of the steel industry was quite a dull image and I think it was for us to change it. What we do now is that we actually spend a reasonable time with the young people in the institutes and campuses explaining what challenges are there because from a distance if it doesn't look challenging people are not going to join. I really do not know exactly why but many of the youngsters from premier institutes are again coming back to Tata Steel especially so during the last 3-4 years and also staying. And when I talk to them they probably feel that the challenge of manufacturing is something which is different than what they had perceived earlier and that’s the word probably spreading in the campuses.

What does the MIS for the company look like? Can you tell us what it contains and where it comes from and what are the metrics that you were looking out for?

Nerurkar: I have just taken over but let me tell you what I do on a daily basis. As regards the market, customers and sales, I get SMS alerts of the previous day's performance. We have a nice IT system so that's possible. The importance production parameters are tracked and any difficulties that people have. After that I really don't look at the business for the rest of the day. We have a once a week coordination meeting with my senior colleagues Muthuraman and Adams and we discuss the issues which were overlapping or common or if there are any special happenings.

What is changing today as we have come out of a downturn in India? We are still in recession in parts of the world so what is paramount in the strategy discussions and meetings?

Nerurkar: Majority of the discussions are how we improve your market position and how we you grow in Southeast Asia and how do we ensure better profitability in Southeast Asia. The main issues are now how do we integrate better between India long products and Thailand, Singapore, the rest of Southeast Asia including China and Australia.

We are seeing steel prices coming down slightly and we have seen some of those furnaces which had shut down being refired again in China, there seems to be some concern about capacity build up again...

Nerurkar: Stocks in the Chinese trade have gone up. There is a corrective action which has been taken and I’m sure I think it will take up in this quarter. I was in Beijing about three weeks back and when I talked to my Chinese counterpart that was the sentiment expressed.

I don't think they were interested to export in a big way or on an abnormal basis. When the stock is up, you take out something or you add something, these are small aberrations and it is also expected from the 18 steel consuming industries from China that from January the demand will again pick up. The prices are expected to go up from January to March quarter in China. There's a small aberration in the growth story of China from September to November or something like that.

Do you see India following suit in some way both in terms of demand patterns as well as prices?

Nerurkar: India demand has been pretty consistent. I don’t think there is an issue at all. As regards prices, you are not going to see the heydays of the last five years for the simple reason that there is overcapacity in the world. We don’t have too many barriers. So imports will come in if you are too attractive for those markets so that's a natural cap on the prices which will happen. Today the world is quite open and you have the information available so that's the natural cap you have.

Can you tell us what kind of shifts you see across the globe in terms of where the steel will be produced, where the raw materials will come from, and where your markets would be and particularly now that you are a global company with a global footprint?

Nerurkar: The growth for steel and its the consuming industries, which are automotive and construction, is more in India, China and Brazil, surprisingly Korea is doing quite well. What we will find is that more and more production is shifting to these countries and the growth is here. In the World Steel Association meeting what came out was the global steel production in 2010 will be same as 2008 but the increase is all in the three countries that I mentioned plus Korea and rest of the world will have the same production as what it had in 2001. That's the kind of change and shift which we are seeing and same is the case in the growth for automotives. This year Indian automotive industry has done very well and you have growth in construction which is still not there in the developed world at all. So production will be obviously more and more in this part of the world rather then the developed part of the world.

On raw materials, today the raw materials are really concentrated in Brazil and Australia, and to some extent in India and gradually people are looking for more and more resources especially in Africa. There is exploration going on even in Russia and parts of China as well. We are also continuously looking for raw materials in our country and how successful we are is yet to be seen. Have we tapped all resources that we have is a moot question and whether we are doing it efficiently is another question. These are areas where there will be more and more work and I see maybe five years down the line we will see some resources which are not in the conventional places like Australia and Brazil but there are somewhere else. Of course those will be challenging resources, because you will have to have infrastructure and political stability in those countries. Those challenges will be there but there are tremendous incentives to do that well because otherwise the concentration of assets in these few countries and companies is causing supply pressures on the steel industry.

What are the kinds of technologies that have come in? How has the acquisition of Corus helped? You were telling me that Corus is one of the first plants that you have visited outside of Tata Steel in the early years...

Nerurkar: Yes! At that time we didn’t know that we will take it over or something like that. I must tell you that one thing that is working very well across almost the entire group is continuous improvement in the technology function. What we have is common expert groups; we call them process improving teams. In fact, now the confidence has developed and some of the processes are done in Holland, some are done in India and the results are shared. R&D also is almost a common  function. We have a common R&D head. The work which can be done better in India, UK or Netherlands that’s what the group decides and does.

In the coming years, what are the two-three areas on the steel making side, that the combine will focus on, would that be better quality, waste management, energy management or something else?

Nerurkar: The overall focus area will be cost. Each unit needs to have a best cost practice which may be different from the other unit but combined wisdom has to go into it to see that each unit is the lowest cost producer, that's number one. The second thrust area will be more and more use of local materials, which is more true for India but not so much for Netherlands and there’s R&D work which will have to be done. So far as Corus is concerned, in Europe and Southeast Asia, energy saving is far more important today. I’m not saying that it is not important for India but the penalty will be very-very high in those countries. It may take a longer time to become important in India so these are the kind of thrust areas. And the most important is the product quality for customers...

How do we create a situation where we expand manufacturing capacities particularly in some of the core sector areas?

Nerurkar: If you ask me the challenges for rapid growth and the comparison is always with China because the speed of the growth there is amazing, there are 2-3 areas where we need to actually work differently. One is the land acquisition, there seems to be complete political confusion over how one acquires the land and you meet various people you will have various views, the bottom line is the people who are getting displaced do not have confidence that they will get a fair deal. Secondly, there is lot of wrong political interference and misguidance for the people.

If we are to become more developed country from where we are, then we clearly need manufacturing jobs, where do you see the next 100 million jobs coming from?

Nerurkar: They will have to be mainly in the manufacturing of steel, the downstream industries and infrastructure. One of the major difficulties that we have to grow fast is our infrastructure and that’s really inadequate today. Our ports in eastern India are in bad shape and we are still paying heavy damages. The integrated development of railways and ports is not going well, the roads are lagging behind.

We have a big coastline and there is a big opportunity in coastal shipping and I’m told it is more environmentally friendly in terms of energy consumption. That's one area that we have to work in. So infrastructure development is a very important activity for us to grow faster.

If you are not finding the opportunity in India will we see another round of global expansion and capacity addition?

Nerurkar: I personally don't think so at this juncture because the growth is here. One is not going to go and put up plants in China. So the growth is in India and we need to grow in India.

Do you think that the epicentre of Tata Steel at Jamshedpur will shift out at some point?

Nerurkar: I think it has already shifted on paper at least. In Jamshedpur, we may be making say 10 million tonne three years down the line and Corus in the Netherlands may be about 7 million tonne, UK somewhere around 9 million tonne and Southeast Asia together almost 4-4.5 million tonne, so more outside Jamshedpur then in Jamshedpur. But Jamshedpur has its own place of pride because that's where everything began. In fact it was India's first industrialistion experiment as Mahatma Gandhi called it. Jamshedpur will always have a special place in terms of its culture, in terms of its profitability and people and our thrust on continuing improvement and that’s what Jamshedpur is all about.