The government must provide fiscal and policy support if the steel industry is to reduce its emissions, said TV Narendran, managing director of Tata Steel Ltd.

Tata Steel closed its second and final blast furnace at its UK unit in September, the same month it commissioned India’s largest blast furnace at its Kalinganagar unit in Odisha, showing divergent trajectories in the two countries .

“Whatever facility we build, we will be among the cleanest and greenest in the country. We always want to be the benchmark in whatever geographical area we operate in,” said Narendran in an interview.

“That said, it also depends on politics,” he said.

European regulations require companies to pay 65 euros to emit a tonne of carbon dioxide, explained Narendran. These levies level the playing field for all and justify investments in emissions reduction processes, he said.

However, due to the absence of such regulations in India, there is no incentive for steelmakers to adopt cleaner technologies, said Narendran, adding that Indian steelmakers can reduce their emissions in several ways, such as by using more scrap during manufacturing, but this increases costs.

“No customer is willing to pay me more for this (in India). The regulator does not encourage me to do this. In Europe, customers are willing to pay more for green steel; the regulation encourages you to reduce your CO2 footprint,” he said.

Steel produced in India is the dirtiest in the world, emitting on average more than 2.6 tonnes of CO2 emissions per tonne of steel, according to a 2022 study by the European Commission’s Joint Research Centre. This is 20 to 25% more than China, the second dirtiest.

Mainly blast furnaces

In India, steel is mainly made in blast furnaces, which transform iron ore into iron at high temperatures, while emitting carbon dioxide and other pollutants. These blast furnaces use coke as an input, which is obtained by heating metallurgical coal in the absence of oxygen, a process that emits multiple pollutants, including nitrogen oxides.

In India, an alternative to blast furnaces is to use furnaces to make direct reduction iron (sponge iron), a process favored by small secondary steel producers. These ovens also run on coal and are very polluting.

However, Narendran does not place the responsibility for reducing emissions solely on policymakers.

“The industry certainly has to pay part of the cost. I’m not saying everything should be passed on to the customer or the government. But the government has to pay part of the cost, and the customers have to pay,” he said.

Narendran drew parallels with the clean energy and electric vehicle sectors, where government subsidies helped the industry reach large scale before becoming competitive with conventional technologies.

Government funding in Europe

Even in Europe, national governments have financed steelmakers’ transition to cleaner technologies. The UK government will fund £500 million of Tata Steel’s £1.25 billion cost to shift to cleaner steel production. The company is holding similar discussions with the Dutch government to obtain subsidies to close its blast furnaces in the country.

Tata Steel is expected to see its margins decline further in India in the current quarter as steel prices remain low. The company gave a lower realization forecast of ₹2,000 per tonne sequentially.

Steel prices have continued to fall in India, alongside weak prices globally, although domestic demand remains robust.

“The market is still a little fragile, but I think things are gradually improving. So let’s wait and see,” said Narendran.

Steel demand could fall

Although demand for steel from the automotive sector could be affected by slowing car sales, demand from the construction sector remains robust, he said. Demand for trucks, two-wheelers and tractors was also strong, supporting steel sales, he added.

Tata Steel’s debt has also risen steadily after the company successfully deleveraged its balance sheet during a surge in steel prices four years ago. As of September 31, the company’s net debt was the highest since FY21 in ₹88,817 crore, with a net debt to Ebitda ratio of 3.41, apart from its guidance of 2.5-3.

“We are not comfortable with that. We want to bring it down to 2.5, that’s clear,” said Narendran. Debt has increased in recent years due to the acquisition of Neelachal Ispat, capacity expansion in Kalinganagar and restructuring in the UK, he said.

“Over the next few quarters, you will see debt decline, and by FY26, we will reach (Net Debt/Ebitda of) 2.5; that’s our plan,” he said.