Dusseldorf European steelmakers are suffering from increased raw material costs as a result of the Russian attack on Ukraine. “We are feeling the effects of the high energy prices in particular,” said Tata Steel board member Henrik Adam in an interview with the Handelsblatt. “This will have a strong impact on the procurement side of the market,” says the manager. “But it’s still too early to assess the long-term impact.”
Last year, Adam moved from the position of CEO of Tata Steel Europe to the board of the Indian parent company, for which he has since been responsible for the European business as a shareholder representative. The new position gives him the opportunity to ask more critical questions: “I know the business very well.” He is now detached from the need to make daily decisions. “This is a very attractive task for me.”
He sees Tata Steel in a good position in Europe. In October, the group divided its European subsidiary into a Dutch and a British company in order to be able to react more flexibly to different framework conditions in climate protection. However, according to Adam, mergers with competitors are no longer an issue. “But the transformation will certainly result in new forms of partnerships, for example along new value chains.” Tata Steel wants to be involved.
Read the entire interview here:
Mr Adam, the war in Ukraine also affects the European steel industry. What consequences have the resulting upheavals had for Tata Steel in Europe so far?
Russia and Ukraine only play a minor role as steel suppliers for the EU. Above all, we are feeling the effects of the high energy prices. This will have a strong impact on the procurement side of the market. But it’s still too early to assess the long-term impact. It will take a few more weeks for all of this to become visible.
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What short-term measures have you taken?
There are options for long-term contracts, and individual raw materials can also be secured in terms of price, i.e. hedged. We do this, as do many others. In detail, there are various, specific options – for example in inventory management. However, the procurement landscape is very heterogeneous. For example, ores can be hedged very well. Rather not charcoal.
Are you still able to deliver?
We buy our raw materials globally. Deliveries from Russia are certainly included. However, after we have taken stock, we are sure that we can continue to supply our customers well.
>> Read here: Short-time work, sluggish orders, raw material shortages: the Ukraine war unsettles the steel industry
Before the West’s conflict with Russia, we saw several trade disputes in recent years. Probably the most important is between the USA and China. What does that mean for a company like Tata Steel, which has a global presence?
We only have very few customers who really operate globally. Of course, the automobile manufacturers are present in many places in the world. But in the end the German mills buy their steel in Europe, just as the Chinese mills buy locally for themselves in Asia. On the supplier side, too, there are mainly local markets.
And in your own purchase? You cannot switch to local suppliers at will.
Yes, we buy globally – from suppliers in the USA, Brazil or Australia, for example. The aim here must be to reduce dependencies in order to remain flexible. This is a core task of procurement.
You yourself have had a new function at Tata Steel’s parent company for some time now, after the European subsidiary was split into a Dutch and a British part. What is your area of responsibility?
I have several areas of responsibility: First of all, I am the local shareholder representative. This makes me the contact person for the two managements in the Netherlands and Great Britain. However, our two business units do not work completely in isolation from each other: We also made various agreements during the splitting up process, for example we continue to have a common customer presence. We want to continue to be represented together in committees where it makes sense. We continue to think in European terms. We will also tackle challenges such as digitization, sustainability and research and development together. Here I will discuss opportunities and solutions together with my colleagues in India and promote topics.
Your work will change as a result: As head of Europe, you have so far mainly been operationally active. Will you miss the day-to-day business?
I am very happy about my new task. This gives me the opportunity, as a shareholder representative, to ask more critical questions. I know the business very well. But I can also use my experience to advise you. I am also somewhat detached from the need to make daily decisions. This is a very attractive job for me.
In 2020, under your leadership, Tata Steel Europe achieved a positive cash flow for the first time in years. The past year is likely to have gone just as well, if not even better. Does this mean that the company’s crisis is over?
The challenge in the steel industry is always not to lose too much money in bad years. We have mastered this task well in recent years. Certainly, these years were very difficult for the entire industry. And it doesn’t get any easier as we look at the transformation of our industry that is upon us all.
From the point of view of a global corporation: How do you see Europe positioned for this?
The past few months have shown how fragile supply chains can be. A local steel industry will therefore continue to be extremely important for Europe as an industrial location. If Europe’s steel industry is not able to remain competitive in the long term, then not only the local steel industry will die, but many other branches of industry as well.
There are companies in Europe that want to tackle this change largely without state aid. An example of this is H2 Green Steel from Sweden, which wants to finance itself privately and build a new steel mill in Europe. Why doesn’t that work for you?
That is always a question of regional conditions. That is why there will not be the same solution for the entire industry in Europe. In Sweden there will be different business and promotion models than in the Netherlands or Great Britain. And depending on the location, there is a different funding requirement. The respective energy markets are also very different. This can also influence site decisions for direct reduction plants, for example.
What do high gas prices mean for decarbonization? Like many other manufacturers, Tata Steel also wants to use natural gas as a bridging technology in the Netherlands, for example, until sufficient green hydrogen is available.
The war in Ukraine has triggered a rethink in many decision-making bodies, whether in politics or in business. It will be a few weeks before more concrete plans are available. We will also find new solutions under the new framework conditions.
Could mergers be one of them? The consolidation process in Europe has recently stalled. Numerous merger attempts, two of which involving Tata Steel, have failed in recent years.
After the failed talks with SSAB, we at Tata Steel made it clear that we want to go our own way as a steel producer. However, the transformation will certainly result in new forms of partnerships, for example along new value chains. We want to take part in that. But first the technical path must be clear.
Mr. Adam, thank you very much for the interview.
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