Tata Steel Ltd (TATASTEEL) Q2 FY22 Earnings Concall Transcript

Tata Steel Ltd (NSE:TATASTEEL) Q2 FY22 Earnings Concall dated Nov. 12, 2021.

Corporate Participants:

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

T V Narendran — Chief Executive Officer and Managing Director

Koushik Chatterjee — Executive Director and Chief Financial Officer

Sanjeev Biswas — Head Sales, New Materials Business

 

Analysts:

Amit Dixit — Edelweiss — Analyst

Prashanth KP Kota — Dolat Capital — Analyst

Pinakin Parekh — JP Morgan — Analyst

Sumangal Nevatia — Kotak Securities — Analyst

Amit Murarka — Axis Capital — Analyst

Satyadeep Jain — Ambit Capital — Analyst

Ritesh Shah — Investec Capital — Analyst

Hitesh Arora — Unifi Capital — Analyst

Ashish Jain — Macquarie — Analyst

Indrajit Agarwal — CLSA — Analyst

Rajesh Majumdar — B&K Securities — Analyst

Bhavin Chheda — Enam Holdings — Analyst

Ashish Kejriwal — Centrum Broking — Analyst

Pinakin — JPMorgan — Analyst

Kirtan Mehta — BOB Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Tata Steel Limited Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I would now like to hand the conference over to Ms. Samita Shah. Thank you, and over to you, ma’am.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Thank you, Janice. Good afternoon, good morning and good evening to all of you joining us on this call today. On behalf of Tata Steel, welcome to this call to discuss our results in the second quarter of FY ’22. The results were published yesterday, and I hope you’ve had a chance to go through them.

We have with us our CEO and MD, Mr. T V Narendran; and our Executive Director and CFO, Mr. Koushik Chatterjee, who will walk you through the numbers and address any questions you may have. After a few opening remarks, we will move into Q&A, where we will take your questions.

Just a few comments. As the merger of Tata Steel BSL into Tata Steel has been approved, all the numbers for Q2 are inclusive of Tata Steel BSL and past numbers have also been reinstated to reflect the same. Secondly, as usual, we will also take questions on TSLP. So investors of TSLP, if you have any questions, please feel free to use this opportunity and ask us. Lastly for our retail shareholders, do type in your questions in the chat box and we will try and address as many as we can. And finally, the disclaimer, which is there on Page 2 of our presentation, which is loaded on our website, will cover the entire discussion today.

So thank you, and over to you.

T V Narendran — Chief Executive Officer and Managing Director

Thanks, Samita. Good day, everyone. I’m Narendran here. Just a few comments before I hand over to Koushik. The global economy has recovered faster than most people expected with the policy support from governments as well as accommodative monetary policies from central banks and also progressive vaccination. However, the increasing number of cases in China and Europe continues to pose a risk, as well as supply chain disruptions and tapering of liquidity are areas that we are watchful about at the time for this recovery.

The steel prices have been volatile within the range over the last few months and a few factors are contributing to the situation. One is the input cost continue to be quite high, iron ore prices have dropped from over $200 to less than $100, but coking coal prices continue to be high at $505 to $600 in China and $380 to $400 for the rest of the world. This in some sense keeps a floor on the prices, and that’s why while there has been volatility, it has been range bound at the higher end of what we’ve been seeing for the last few years.

And the second point I want to make is, China has continuously cut production month-on-month. So you will see that Chinese exports have been below 5 million tons, has been in the 4 million to 5 million ton range, and that has made sure that China is not yet or no longer a disruptor in the international market. So I think, overall, it’s been positive.

As far as Indian demand is concerned, it shrunk by about 2.3% quarter-on-quarter due to seasonality and temporary weakness in various steel consuming sectors, because typically July-September is the weakest quarter because of low activity in construction. And this time, it was supplemented by the semiconductor issue for passenger cars and the commercial vehicles volumes have not picked up in Q2. India’s domestic steel demand is expected to improve with the onset of the festival season and steel prices, which were typically — for most of the last year at a discount to import parity prices have started increasing with improving demand across segments and prices and steel prices now slightly above the landed import prices.

Moving on to our performance during the quarter. During the quarter, Tata Steel India crude steel production moved — improved 2% quarter-on-quarter to 4.73 million tons, as opposed to the previous quarter because the previous quarter was also impacted by the supply of liquid medical oxygen to different states in India. Our steel deliveries improved 11% quarter-on-quarter to 4.5 8 million tons despite the contraction that I mentioned earlier, and this is a testament to our strong customer relationships and a superior distribution network.

We also launched a new superior rebar Tata Tiscon 550SD for our retail customers, and this quarter we developed 53 new products in India for our customers across segments, including automotive, industrial products and projects, brand new products in retail.

On ongoing projects at Kalinganagar have picked up steam following a slight slowdown due to the second wave and 6 million ton pellet plant in PLTCM is now expected to be commissioned in the second quarter of the next financial year. We are making good progress on our various initiatives to be best of business and our channels recorded 38% quarter-on-quarter growth in its quarterly gross revenue while services and solutions witnessed best ever operational performance in the second quarter ’22 — FY ’22.

Our steel recycling and new materials businesses are also growing well. On Europe, our economic activities in steel consuming sectors are witnessing recovery, while the automotive sector is impacted by the semiconductor shortages. Our steel production in Europe declined by about 4% quarter-on-quarter due to some temporary operational issues at both Netherlands and the U.K. steel-making sites, and steel sales volume declined about 8% quarter-on-quarter to 2.14 million tons the September quarter, but better product mix improved our underlying performance sharply.

Koushik will further elaborate on our financial performances and European steel prices are expected to remain resilient with continued supply tightness, but we remain watchful of the surging power and energy costs, especially in the U.K. I’m happy to say that the merger of Tata Steel BSL with Tata Steel has been approved by the honorable NCLT Mumbai bench and the appointed date of the merger is April 1, 2019.

We continue to progress on our ESG commitments and we recently commissioned a 5 tonne a day carbon capture plant in Jamshedpur. We also started increasing our scrap charge in our operations across sites in India. In Europe, we’ve announced our plans to pursue a transition over the decade towards a more hydrogen-based route and a detailed assessment of the same is underway. Recently, we won the high quality Gandhalpada iron mine which was stated close to our facilities to our existing Khondbond iron mines in Odisha and within approximately 200 kilometers from our facilities in Jamshedpur Kalinganagar and Angul and it’s next to the Kalamang mine, which we got along with the Bhushan acquisitions. This is another step towards our raw material security beyond 2030.

With this, I hand over to Koushik for his narrative.

Koushik Chatterjee — Executive Director and Chief Financial Officer

Thank you, Naren. Good afternoon to all of you. Hope you and all your loved ones are safe and getting vaccinated. As mentioned by Samita, the Tata Steel Standalone numbers have been restated from 1st April 2019 to reflect Tata Steel BSL’s merger into Tata Steel. However, as the business model for TSBSL is slightly different from Tata Steel with more downstream and 100% purchased coal, etc., the second quarter numbers for standalone including Tata Steel BSL are not a simple extrapolation based on additional volumes that you will need to tweak your models a bit and we can discuss that later.

Coming to the performance, continuing with our strong performance in the last two quarters, our consolidated financial performance for the quarter was again strong on the back of underlying business performance across geographies, despite the impact of the sharp increase in coking coal prices and additional royalties to be paid in India on iron ore with the amendment in the MMDR Act.

Our consolidated revenue increased during the quarter by 13% quarter-on-quarter and 55% year-on-year to INR60,283 crores. We have achieved a new highest-ever quarterly consolidated EBITDA of INR16,618 crores, which reflects a margin of 28%. The consolidated profit after-tax was also one of the highest at INR12,548 crores with the net profit margin of 21%.

Our India operations, which include restated standalone and Tata Steel Long Products, generated revenue of INR34,220 crores, supported by increase in steel prices and higher deliveries. We achieved highest-ever quarterly adjusted EBITDA of INR13,877 crores during this quarter.

The Tata Steel Standalone revenues increased by 18% quarter-on-quarter and 51% year-on-year to INR32,582 crores with the benefit of strong steel prices and higher deliveries. The Tata Steel Standalone also achieved the highest-ever quarterly adjusted EBITDA of INR13,574 crores with 4% quarter-on-quarter and 133% year-on-year growth.

Can I request others to mute the mike, please? I think there is some disturbance. Thank you. This translates into an EBITDA margin of about 42%. The operations generated free cash flow of more than INR4,300 crores in second quarter of this financial year.

Based on the commentary that we’ve been seeing this morning, it appears that the India performance need some deeper explanation which is partly because the second quarter numbers needs to be seen [Technical Issues]. Let me add a few points on this. In second quarter, the overall net realization, which is Standalone plus Tata Steel BSL, increased by about INR3,400[Phonetic] rupees per ton quarter-on-quarter against our earlier guidance of INR3,000 per ton.

Coming to revenue per ton, in second quarter, the revenue per ton for combined — for Standalone plus Tata Steel Bhushan increased by about INR4,550 per ton quarter-on-quarter to about INR73,700 per ton, which is higher than many of the consensus estimate that I’ve seen, primarily by an increase of about INR4,350 which is what we have seen earlier.

Tata Steel BSL, the overall revenue increased by 6% quarter-on-quarter, i.e., about INR450 crores, driven by higher prices, partially offset by adverse mix impact due to higher slab sales on account of operational issues and lower exports. But the Standalone, inclusive of Tata Steel BSL, the second quarter costs were higher by INR4,850 crores on account of a couple of factors. Let me talk about them one by one.

The total raw material costs, excluding the impact of change in inventory which increased by about INR1,800 crores on quarter-on-quarter basis, primarily due to INR750 crores increase in coal consumption cost with higher prices and higher consumption of imported coal by about INR400 crores increase in the consumption of purchased pellets that we did more specifically in TSBSL. As a result, on a per ton basis, the total raw material cost per ton increased by about INR3,600 quarter-on-quarter. Secondly, there was about INR1,600 crores on account of higher royalty and taxes, which is reflected in the other expenses. Of this, about INR1,200 is on account of MMDR amendment, of which about INR320 crores is actually a pass-through. So TSLP takes about INR219 crores and metallics takes about INR198 crores.

For TSBSL, the additional royalty was about INR510 crores and which no longer be relevant as we go forward. For third quarter, the outflow on account of Tata Steel BSL, which is a run rate of about INR100 crores per month, will not be there on completion of the merger. In addition, TSLP performance was weaker than expected, due to lower DRI sales and higher material cost amidst the higher royalty and higher iron ore and coal costs.

Let me now — that clarifies to some extent the movements that everybody was expecting. Moving to Europe, our revenues improved to about GBP2.1 billion during the quarter, with the increase in the market prices getting translated into the profit and loss account. The reported EBITDA for the quarter more than doubled to about GBP328 million on a quarter-on-quarter basis, with higher steel prices and better mix which was partially offset by increase in the raw material costs, especially coking coal and certain increase in the energy cost. This is after a charge of GBP32 million for the CO2 emission rights, there is also GBP13 million one-off credits. The underlying EBITDA was around INR315 crores — GBP315 million, sorry.

We had INR1,192 crore forex revaluation in the second quarter on account of the adverse movement in the FX on account of the external and internal Company debts versus INR293 crores in the first quarter, which was a gain.

Our capex is being prioritized on value-added expansion, Naren mentioned, including Kalinganagar and strategically essential investments. On a consolidated basis, we have spent about INR4,200 crores in the first half of this financial year. So far, our total spend on Kalinganagar is about INR7,058 crores. As mentioned previously, our financial year ’22 consolidated capex guidance is around INR10,000 crores to INR12,000 crores.

The operating cash flows continue to be strong despite working capital pressure due to price effect on coal and coal price increase in recent months. Beside this, the quarter also witnessed major cash outflows in the form of tax, which was about INR4,223 crores and dividend of about INR3,000 crores. Despite this, the Company generated consolidated free cash flow of over INR3,300 crores during this quarter. And just to repeat as part of our enterprise strategy, we continue to deploy the free cash flow for deleveraging the balance sheet with about INR11,400 crores of debt repayment in the first half of the current financial year, and we are certainly targeting additional aggressive deleveraging in the second half as well.

Our net debt to equity has further dropped to about 0.9x, while the net debt to EBITDA improved to about 1.2x. Group liquidity position remains strong at about INR20,000 crores, including about INR9,300 crores of cash and cash equivalent. At the start of this financial year, we had a — we had set a target of achieving the investment-grade financial matrices and I’m happy to state that this has been achieved in the first half of this year and we are happy to also note that Standard & Poor’s has upgraded Tata Steel to investment grade of BBB minus.

In line with our strategy to exit non-core markets, we successfully divested our 100% holding in NatSteel Singapore at the end of this — the previous quarter, which is quarter two, to realize about INR1,200 crores that has resulted in a realized gain on divestment of about INR720 crores for the quarter, which has been accounted for.

So with this, I will end my comments and open the floor for questions. Thank you.

Questions and Answers:

 

Operator

Thank you very much. Ladies and gentlemen, we will now begin the question-answer session. [Operator Instructions] The first question is from the line of Amit Dixit from Edelweiss. Please go ahead.

Amit Dixit — Edelweiss — Analyst

Yeah. Hi, good afternoon, and congratulations for record EBITDA in Q2. I have couple of questions. The first one is on coking coal cost. So what was the coking coal cost in P&L in Q2? And what increase do you expect in Q3?

T V Narendran — Chief Executive Officer and Managing Director

So Amit, the increase from Q3 — I mean from Q2 to Q3 in coking coal cost for India will be roughly about $100 a ton. Okay. And for Europe — Europe, I think it is going to be about EUR55 a ton.

Amit Dixit — Edelweiss — Analyst

Okay. And that takes into account the partial security we have?

T V Narendran — Chief Executive Officer and Managing Director

Yeah.

Amit Dixit — Edelweiss — Analyst

Okay. The second question is essentially — there is a — in Standalone cash flow statement, there is a loan given of INR16,547 crores. So just wanted to understand, I mean, with entity we have given loan to, and when it is expected to be repaid?

Koushik Chatterjee — Executive Director and Chief Financial Officer

So Amit, this is actually part of our deleveraging strategy we’ve been prepaying our overseas loans. So what you see is essentially funding to repay or prepay the loan in the senior facilities agreement in Europe, which we want to pay off. And that’s been our focus as part of our deleveraging because India balance sheet doesn’t have that significant loan and there are some bonds outstanding, etc. So we are essentially focusing in the overseas loan and then we will come back and see what we can reduce in India. So that’s the amount that you see as invested — as given as loan.

Amit Dixit — Edelweiss — Analyst

Okay. That helps. Thanks and all the best.

T V Narendran — Chief Executive Officer and Managing Director

Thanks.

Koushik Chatterjee — Executive Director and Chief Financial Officer

Thank you.

Operator

Thank you. The next question is — the next question is from the line of Prashanth from — KP Kota, Dolat Capital. Please go ahead.

Prashanth KP Kota — Dolat Capital — Analyst

Sir. Good afternoon and thanks for the opportunity. Sir, on — in terms of the — I had two questions. The first one, sir, in the H1, we have about — we have delivered strong operating cash flow, out of which about $125 billion to $130 billion has gone into working capital increase. How much of that — and what is the roadmap for that to unwind sir? What needs to happen for that to unwind?

Koushik Chatterjee — Executive Director and Chief Financial Officer

So effectively, during the first half of this year, what you would see is that the working capital build up essentially on account of prices, which is both from a finished goods prices and raw material prices. In India, on the coal increase, in Europe on coal and iron ore, and also the finished goods, the number of days is still contained within the range that we have. What has happened is the price effect which has come in.

What we are trying now or what we will be focusing on is to reduce and optimize on the holding base, and that should start reversing from the third quarter onwards. We have a challenge that coal prices have increased even more, but I think we will be essentially focused on releasing working capital from the third quarter onwards so that it will not happen all in one quarter, it will take some time. But — and there is a huge optimization on the holding days, the quantity because it’s also important to ensure that we have sufficient inventory for running operations comfortably. So — but you would see some reversal from third quarter.

Prashanth KP Kota — Dolat Capital — Analyst

Understood. Sir, second question. Sir, I just wanted to know your thought process broadly that on this — on the aspect of does anything — any covenant or does any regulation forbid us from doing a buyback?

T V Narendran — Chief Executive Officer and Managing Director

No, there is no covenant or regulatory issue that stops us from doing buy back.

Prashanth KP Kota — Dolat Capital — Analyst

Okay. Sir, India — my question is coming from the context that given the cost of that is quite low, particularly in overseas, and even in India now, so is it not a good idea to consider a buyback? Just to give [Technical Issues].

Koushik Chatterjee — Executive Director and Chief Financial Officer

So, I’m sure at some point in time, the Board will look at it and look at options for better returns for shareholders. But at this point of time, I don’t think we are yet in the zone of debt levels where we can not pursue the deleveraging. So I think we have some roadmap to go forward in repaying the debt. It’s important for us to continue to be fitter from a balance sheet perspective and I’m sure at some point in time other options will certainly be looked at.

Prashanth KP Kota — Dolat Capital — Analyst

Okay, sir. Understood. Thanks.

Koushik Chatterjee — Executive Director and Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Pinakin from JP Morgan. Please go ahead.

Pinakin Parekh — JP Morgan — Analyst

Thank you very much. Two quick questions. First, if you look at the first half EBITDA INR16,000[Phonetic] crores broadly in each quarter, second quarter had bunch of one-offs, which some of the royalty expenses were not recur in second half. Now coking coal prices, if first iron ore has fallen, steel prices are broadly steady. Into the second half, how should we look at performance on a consolidated level? While margins could come off, volumes will be higher. So can the first half EBITDA run rate at the consol level be maintained in the second half given what visibility we have on steel prices cost and volume?

T V Narendran — Chief Executive Officer and Managing Director

So Pinakin, I think that’s what we’re chasing. There are few things which look better in second half and few things which look worse. But overall, I think on the positive side, we expect demand in India to be better in second half than first half. Second thing is the iron ore prices coming down will help us certainly in Europe. The third thing is in Europe because Section 232 issues have been sorted out with the U.S., there are options beyond Europe for our European business. And fourthly, we expect the semiconductor issues to be better in the second half than in the first half. And in India, we are already seeing improvement in commercial vehicles, etc. So there are a number of aspects which we are seeing as positive.

What we are watchful about is increasing COVID cases in Europe and in China and whether that will have an economic impact. The second is, of course, we are watching what’s happening in China, but I think what we’ve seen is China’s cut production every month, month-on-month. And that’s why exports from China has not been a disruptor so far, and we don’t expect it to be a big disruptor going forward.

So energy costs in Europe are also something we’re watching. So that’s why it’s a bit of a mixed bag. But yes, as you said, the volumes should be better in the second half and we’ll have some opportunities to improve spread, particularly when the iron ore prices soften a bit. We will have a little bit of an impact of coal bought last quarter flowing into this quarter. Yeah.

Pinakin Parekh — JP Morgan — Analyst

Sure. So just to clarify further, is it fair to say the second half Europe could be better than what the second quarter is, though India margins could be softer?

T V Narendran — Chief Executive Officer and Managing Director

So, second half Europe will be better than first half because, as you know, first quarter Europe was not good, right? So now we are seeing the spread stabilize to the levels that we wanted to be. We will also see some of the new contracts coming in 4Q — Q4 because a lot of the packaging and automotive contracts which have been renegotiated will start — or being renegotiated will start kicking in, in Q4. So yes, Europe should not see a deterioration and we think that things will improve a bit.

Pinakin Parekh — JP Morgan — Analyst

Understood. And lastly, consolidated interest came up very sharply. So what should we look at as a steady-state interest cost as the Company keeps on repaying debt?

Koushik Chatterjee — Executive Director and Chief Financial Officer

So Pinakin, I think, during this quarter, we had a reversal of about INR260 crores of interest provided for — previously because the merger with TSBSL was not in — not kind of approved and therefore we were taking in the tax impact of the same, the tax losses. But if you are not in — it will not pay advance and you have to account for it as a penalty, which has got reversed in this quarter. So if you gross it up by INR260 crores, then that is the — broadly the level that will continue. And then once we are repaying — as we are repaying progressively, it will step down uniformly across the next few quarters.

Pinakin Parekh — JP Morgan — Analyst

Understood. Thank you very much, sir.

Koushik Chatterjee — Executive Director and Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Hi. Yeah, good afternoon, and thank you for the opportunity. First question, just continuing on the Europe part. So first, if you could just give some more details first into pricing, I mean we’ve been soft — spot price is softening, but at the same time we will benefit from the contract reset. So how could we — how should we see realizations in Europe in the coming quarters? And whether it’s peaked in 3Q or 4Q?

T V Narendran — Chief Executive Officer and Managing Director

So, I think, basically, Q3 we expect in Netherlands the prices to be about EUR50 better than Q2 and in U.K. about GBP45 better. So pretty much close to similar EUR50, — EUR50, EUR55 better in Q3 than in Q2. Q4, we are still in the process of negotiating some of the contracts, etc. So I won’t give a Q4 guidance just now. But certainly, we are hopeful that we can keep improving on it because we also have this issue of energy prices in Europe that we need to keep an eye on. And many steel companies in Europe have already talked about the need to cover that through price increases.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. And then with respect to cost, iron ore versus coking coal and versus energy, I mean how do these three costs move in the next quarter or so in Europe?

T V Narendran — Chief Executive Officer and Managing Director

So Europe, the coal cost will be about EUR56 higher — EUR55, EUR56 higher in Q3 over Q2. Iron ore cost should be EUR30 lower in Q3 over Q2.

Sumangal Nevatia — Kotak Securities — Analyst

Understand. Understand, sir. My second question is with respect to our recent iron ore mine bid where we won at a very huge premium. I just want to understand if it’s a change in stance what we’ve been quite conservative in the past auctions. So given that we have a captive iron ores on the couple of years left, I mean, is it possible to share some rationale and thoughts on that?

T V Narendran — Chief Executive Officer and Managing Director

Sure. As you rightly said, we’ve been very careful about what we bid for which mine. So there are few things which attracted us to this mine. Firstly, it’s a 350 million kind of result. So it’s a big mine. We prefer big mine because it’s much easier to drive efficiencies there. Secondly, the low alumina ore, which is very important in India, because India ores are typically high alumina, whereas this is 2.2% alumina and this becomes even more critical when you’re looking at lower carbon footprint. Because the higher the alumina, the carbon footprint and production is higher. So we have — going forward, we see low alumina ores will be even more valuable than any iron ore. So that was the second reason.

The third reason is this is adjacent to the Kalamang mine, which we got by the Bhushan acquisition, and that also has about 100 million tons. And that is also available with us for the next 30, 50 years or so. So if you look at Kalamang and Gandhalpada together, again we can extract a lot more value than anybody else because they’re adjacent mines and adjacent mines give significant benefit because you don’t have to waste ore at the border of these two mines.

Fourthly, this gives us a good stable supply beyond 2030, and that allows us to invest in slurry pipelines and other infrastructure that is required, where for existing lines we are constrained by the fact that we don’t know the situation after 2030. And finally, this is a greenfield mine. So we are — we have no obligation, if you acquire an existing operating mine, you have to produce that same volume or around that volume, otherwise you end up paying penalties. So this is a greenfield mine, we can develop it at a pace that works for us, that’s convenient for us and time it well for our transition in 2030. And finally, having this — having Kalamang, Vijaya II mines of TSLP and Gandhalpada, we are in a comfortable position to pick and choose what we want to bid for in any new option.

So I think strategically it sets us up very well, and that’s why we bid the premium we did.

Sumangal Nevatia — Kotak Securities — Analyst

Thank you. That’s very elaborate. If I may just squeeze in one last question. And now this royalty outgrew because of the MMDR amendment for our subsidiaries, Tata Steel Metallics and Long Products, it looks to be [Technical Issues] at least on next couple of years. So is it — I mean, given that it is a very substantial portion of the profitability there, does it makes sense now to run it as a separate company or we may evaluate combining everything firstly?

T V Narendran — Chief Executive Officer and Managing Director

So we are exploring all options. This is more recent development, so we are exploring all options. For TSLP, we also have an existing mine, which is part of TSLP, which is the Vijaya II mines. So, you have an option there to serve the requirements. So we cannot fully fulfill what is required. So we are exploring all options and we will discuss at the Tata Steel Board, then the boards of those companies before we decide.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. Thank you, and all the best.

T V Narendran — Chief Executive Officer and Managing Director

Thank you.

Koushik Chatterjee — Executive Director and Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Amit Murarka from Axis Capital. Please go ahead.

Amit Murarka — Axis Capital — Analyst

Yeah. Hi, good afternoon. So, my question is on the carbon credits. Could you just explain the CY ’22 — CY ’21carbon credit position? Like, are we on track or will some further provisions need to be made?

Koushik Chatterjee — Executive Director and Chief Financial Officer

So on the carbon credits, Amit, there is no movement on the credit. So all that has been done in the first quarter. We have also got our allocation, which is banked and kept with us, and there is no change at this point of time. From underlying perspective, another allocation will come early part of ’22 and we are in — we will be in compliance with the requirements. And I don’t see anything going forward on that. There are certain hedges we had taken on which there are some non-cash provision that has been taken. But beyond that, there is nothing on an underlying basis and the credits will continue to be banked and used for compliance purposes.

In Netherlands…

Amit Murarka — Axis Capital — Analyst

No, please go ahead.

Koushik Chatterjee — Executive Director and Chief Financial Officer

Yeah. So, that is where it stands from our TS U.K. perspective. And in Netherlands, we continue to get free allowances and with the same. So there is no — so our — strategically and operationally, we are not essentially going to get into any trading position in the future.

Amit Murarka — Axis Capital — Analyst

Okay. I understood. And also just on the, like, our longer-term objective of reducing the emission footprint and you’ve mentioned in your release about pursuing the hydrogen route in Netherlands, could you just share some more details on that? And by when do you think you will move ahead on this project?

T V Narendran — Chief Executive Officer and Managing Director

Yeah. So Amit, basically in Europe, as you are aware, the EU has set itself some goals and the countries themselves have set themselves some goals. So there is a plan for the industry and not just us to transition to a greener future. But that means multiple things. Firstly, different governments are coming up with different structures to support this transition. So that’s a conversation we are having both with the U.K. and the Dutch government. Secondly, to make sure that the industry in Europe is not penalized despite being efficient because our plant in IJmuiden is one of the most carbon efficient in the world, in fact, the second-best in the world if you — as per the recent World Steel Association numbers. So we are seeing the European Union propose a carbon border adjustment mechanism, which make sure that the transition is supported.

Thirdly, we are also seeing greater appetite for amongst customers in Europe to pay a premium for green steel. So all this and the fact that there is a carbon price, which is already there, which is now at some EUR60, EUR65 a ton. So all this means that all of us — I mean the industry, including us, will have to make a plan for the future, which is what we’ve talked about. So while in Netherlands we were looking at carbon capture and storage as a possible solution, we’ve concluded that it’s better to move towards a gas-based DRI and then hydrogen-based DRI as a solution rather than go for a CCS solution which later we may anyway have to go for gas-based or hydrogen-based DRI. So that is what we have said.

And over the next 10 years, we will transition at least one of the blast furnaces into this process route and we will plan it and time it in a manner that is supported by policy as well as obviously supported by the financial viability of the strategy.

Amit Murarka — Axis Capital — Analyst

Yeah. And if I may ask, what kind of state support you expect from this financially?

T V Narendran — Chief Executive Officer and Managing Director

So, as we said in our release yesterday, we are still working out the details of the cost of this transition, etc., because there are multiple process interventions that we need to plan for. And once we have that, then we will have a discussion with the government. The government was supportive of the CCS route because that was a preferred route in Netherlands. But given our announcement, the government is also exploring what they can do for this process route. So I think government has been supportive, but we’ve not had a specific conversation yet till we’ve finalized our plans.

Amit Murarka — Axis Capital — Analyst

And do you continue to less…

Operator

I’m so sorry to interrupt, but may I please request you to rejoin the queue for your follow-up?

Amit Murarka — Axis Capital — Analyst

Sure. Thanks.

Operator

Thank you. The next question is from the line of Satyadeep Jain from Ambit Capital. Please go ahead.

Satyadeep Jain — Ambit Capital — Analyst

Hi. Thank you. A couple of questions. On Europe, can you talk about your energy exposure given the rising energy prices? And in the upcoming winters, you also supply, I believe, [Technical Issues] on-site essential plant in U.K. also. So given the talk about energy surcharge that is going on in Europe, what — when you look at the cost increase in the possible surcharge, what kind of impact we have to sport energy prices, sir?

T V Narendran — Chief Executive Officer and Managing Director

So typically, our energy costs are about EUR30 million to EUR40 million a quarter, and that’s obviously expected to increase in Europe. And we are looking at it in the EUR80 million to EUR100 million range going forward. Now, obviously, some of it will be recovered from the customers. Because it’s not just us, everybody else is facing the same problem. I think we are in a better position in Netherlands where we are hedged quite a bit. U.K. is where we have a little bit more of a problem. But I think, since it impacts everybody, as you said, there will be a move to recover as much of it is possible from the market.

Satyadeep Jain — Ambit Capital — Analyst

Okay. And there was a talk about some auto customers also cancelling some auto contracts. Is that still going on? Has the situation improved somewhat there?

T V Narendran — Chief Executive Officer and Managing Director

I’ve just heard that. I mean — based on — I know one of our peers mentioned that, but we have not heard anything of that yet. But I must also say that the — this is where the U.S. option opening up is a positive for Europe because auto has been taking less than they had planned because of the semiconductor issues and the U.S. market has always been a good market for Tata Steel in Europe. We typically export about 1 million tons. We have brought it down by 50% over the last few years, but now that’s also an opportunity available to us.

Satyadeep Jain — Ambit Capital — Analyst

And sir, a clarification question to the previous question on the transition from blast furnace to DRI at Netherlands. Sir, basically, the blast furnace would be shut down when it reaches the end of life and that one moved to DRI, that would be plan?

T V Narendran — Chief Executive Officer and Managing Director

Yeah. Generally, the transition being planned in Europe by multiple people is whenever the blast furnaces reach end of life, you then look at having a gas-based DRI assuming gas is available. And then later when hydrogen is available in plenty and at a reasonable cost, you substitute gas with hydrogen.

Satyadeep Jain — Ambit Capital — Analyst

Okay. Thank you so much.

T V Narendran — Chief Executive Officer and Managing Director

Thanks.

Operator

Thank you. I would now like to hand the conference over to Ms. Shah.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Yeah. Thank you. So we have a few questions in the chat, which we will just take now. The first question I think is on steel price movement on the NR guidance in India, given the surge in coking coal cost and also the fact that domestic steel prices are now more in line with input prices.

T V Narendran — Chief Executive Officer and Managing Director

So, I think, here, the guidance we’d like to give is Q3 prices will be on an average about INR2,500 per ton higher than Q2 in India — sorry, I mean the realizations.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Yeah. Thank you. So the next question is in terms of the volume guidance for the rest of the year and whether we are on track to meet the million tons more in India as well as in Europe, which we had said earlier.

T V Narendran — Chief Executive Officer and Managing Director

So basically, if you look at Q3, I think India will be flat, Europe will be better than Q2. Europe will be closer to Q1. Overall for the year, we are — maybe between EUR1.5 million and EUR2 million on a consolidated basis. That’s the way I look at it.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Thank you. The next question, I think a lot of questions around this, whether the iron ore and coal cost mentioned is per ton of ore or per ton of steel. Just to clarify, it is per ton of ore and not per ton of steel. Some more questions, and this one is on TSLP that with the change in the MMDR Act, going forward, what is the increased royalty payment at TSLP?

T V Narendran — Chief Executive Officer and Managing Director

I think what we’ve said is roughly for the half year, it has been about INR200 crores. I mean, again this is dependent on the iron ore price. As the iron ore price drops, this will drop. So this obviously INR200 crores factors in the high iron ore prices over the last six months for — today’s iron ore price, I don’t know what the exact calculation will be, but that’s probably the highest we would think.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Thank you. Next question, and Koushik you might like to take this, that given the Group’s focus on deleveraging and Tata Steel’s investment-grade status, would you also extend — would you also refinance some of the existing U.S. dollar bonds and don’t come out further?

Koushik Chatterjee — Executive Director and Chief Financial Officer

Well, these are all trading at a premium at this point of time. So I think it would be fairly costly to do so. And therefore, we are not looking at refinancing the bonds. We’ll let it run past the maturity date.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Yeah. So I think the question actually is more, I know we’ve used the word refinancing. But I think the question is, would you issue a fresh — do a issuance of US dollar bonds?

T V Narendran — Chief Executive Officer and Managing Director

Okay. I think at this point of time, we just planned. If we do it, we’ll — we are watching the market and seeing how the trades and deals are happening, but nothing at this point of time.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Thank you. And one last question, which we’ll take in chat, before opening it back to the analysts. It is in terms of the impact of China. China with the kind of changes, which we are seeing in steel demand and the production cuts shaping up, what impact do you see of that on steel prices generally, and specifically for Tata Steel?

T V Narendran — Chief Executive Officer and Managing Director

So, I think, overall we are seeing China as less of a disruptor through exports. Over the last 10 years we were always watchful about Chinese exports coming and being dumped in multiple market. We are less worried about that now, because I think China has exercised great discipline in cutting production month-on-month. If you look at the World Steel Association forecast we just made last month, basically World Steel Association has forecasted steel consumption will grow at 4.5% globally, and this assumes China has no growth of steel consumption. All this 4.5% is coming from developed world and developing countries like India. So there is a shift in where the growth of steel consumption is happening going forward. It will be led by infrastructure investments in the developed countries, and in developing countries like India. Also the regions like Middle East, Southeast Asia and Africa will continue to grow in steel consumption. So given that we are watching China more from a point of view, it’s impact on iron ore prices and coal prices, and less about them flooding markets with a lot of exports. And given China’s ambition to become net zero by 2060, I think they’ve already stated that they want to discourage steel exports over the medium and long-term. So less of an impact. And certainly for Tata Steel, we are more leveraging what’s going to happen in the domestic market. We are less dependent on export markets. Last quarter — two quarters, we were at 16% exports. This quarter, we will be at 12% export, which is close to a long-term average on export. So we are looking forward to the recovery in the Indian market.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Thank you. Janice, we’ll go back to the analysts questions please.

Operator

Sure. The next question is the — the next question is from the line of Ritesh Shah from Investec Capital. Please go ahead.

Ritesh Shah — Investec Capital — Analyst

Yeah, hi, sir. Thanks for the opportunity. Sir, two questions. First is on capital allocation and in Europe. Sir, we have given a medium term target of 15% of ROC, and if I remember the same number is 12% for carbon adjusted ROC. Just wanted to put into perspective, you indicated the idea for exploring gas-based DRI eventually going into hydrogen. So will it meet the thresholds what we have stated over here? Or is it option that we can actually deploy equivalent capital probably in India itself or some other regions globally? That’s the first question.

Koushik Chatterjee — Executive Director and Chief Financial Officer

So, Naren, if I can take…?

T V Narendran — Chief Executive Officer and Managing Director

Sure.

Koushik Chatterjee — Executive Director and Chief Financial Officer

So fundamentally, this transition that is going to happen first in Europe and then much later in India is being looked at from a financing perspective blend between the — what the Company’s internal capital is, between green financing that will be raised for this purpose. And then the government support on target funding because there are several funds and teams that have been floated in Europe. So if you take all of these three and then do the math, then — and if you adjusted for the European cost of capital, I think we will certainly be in a good space. And I think that is our format at this point of time. That’s why it’s important to get the government schemes and government financing and government-backed green financing. So over the next couple of years that is something which is going to be applied on. The 15% CA IRR part that we used or what we talked about in the Investor Day was essentially on deployment in India on the capital allocation of that. And I think we are fairly firm on that at this point of time because India transition is not happening in the next few years, it will take a long time. I think India has just announced the 2070, and new NDCs will come into play for 2030, and for which we are ready and we have already announced that we will be — our intensity will be 2 tons of carbon per ton of good steel by 2030. So we’re sticking to that. So — and we are also going to look forward at some point in time how green financing will help us in that transition even in India. So that’s broadly the perspective. So it’s — if you look at it, the short and medium term of 15%, it’s certainly holds and our capital allocation certainly is a measured against that.

Ritesh Shah — Investec Capital — Analyst

Great. That’s quite useful, sir. Sir, my second question is, you indicated about the discipline on Chinese exports, which is encouraging, but sir, how should one look at Chinese export pricing, which has been declining one way? What would you infer it — what would you infer out of it for local pricing when one looks at about import parity? And secondly for our export shipments, pricing could again be under pressure just because of China’s export pricing being lower, and as the freight shipments potentially impacting how we price our shipments. Sir, how should one look at this? Thank you.

T V Narendran — Chief Executive Officer and Managing Director

So, it’s only the last maybe a week or so that some Chinese exporters have been a bit aggressive in Southeast Asia and Turkey, etc. But China still buying coal at $550. So $600 coal has come down to $550. But at $550 coal, there is only that much you can drop prices by. So that’s something which we need to keep in mind. Secondly, what we’ve seen even in the last one year is, when exports goes up, the Chinese government changes the rebate structure to discourage exports because they are really not wanting China to import iron ore and coal to leave a carbon footprint behind an export steel. So we are seeing that that is being tracked very closely. And normally winter months there are production cuts as well. So I think, for multiple reasons we are less concerned about Chinese exports now than we were let’s say three years back, or five years back.

Ritesh Shah — Investec Capital — Analyst

Sure sir. That’s very helpful. Thank you so much for the answers.

T V Narendran — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Hitesh Arora from Unifi Capital. Please go ahead.

Hitesh Arora — Unifi Capital — Analyst

Yeah, thanks for the opportunity. So I just wanted to understand what’s the outlook on coking coal prices especially when you speak to Australian miners, and what’s been happening around the world? So, what are your thoughts on the coking coal prices? When do we see them normalizing and how?

T V Narendran — Chief Executive Officer and Managing Director

Sure. Hitesh, there are couple of things happening, right. Firstly, China is not yet buying coking coal from Australia on a regular basis. I think they cleared some of the shipments, which are stuck there, but largely they’re not buying as they used to before. That’s why China continues to buy coking coal at a higher price that is available to the rest of us. So they’re buying largely from the US, Russia, Mongolia etc. As far as India is concerned, India has now become the biggest importer of coking coal in the world or the buyer of coking coal — importer of coking coal, I think that’s more accurate. And we buy from Australia, largely. Now Australia, there are not too many options on supply. So for the good quality coal, there are a few suppliers. They’ve also had their own challenges. That’s why the coking coal prices out of Australia is still been reasonably stable at $380 to $400. We don’t see it dropping significantly. We see it more in the $350 to $400 range for some time because it’s not a very liquid market and any small interruption, any weather disturbance etc., pushes up the prices. And with steel production growing in the rest of the world, including in India, the demand continues to be quite strong. So I expect coking coal prices to be in the $350 to $400 range at least for the this quarter and next.

Hitesh Arora — Unifi Capital — Analyst

Understood, sir. Thank you. Thanks a lot.

Operator

Thank you. The next question is from the line of Ashish Jain from Macquarie. Please go ahead.

Ashish Jain — Macquarie — Analyst

Hi, sir. Good afternoon. Sir, I have two questions. Firstly, comment that you just made on coking coal and given our guidance for 3Q, does it mean that 4Q onwards there is another $100 impact is or less to be reflected in our financials from coking coal point of view?

T V Narendran — Chief Executive Officer and Managing Director

No. I think we peaked as far as the buying price is concerned, and we’ll be pretty much there. We don’t see any further increase in Q4, unless coking coal prices again shoots up.

Ashish Jain — Macquarie — Analyst

Okay. Okay. Got it. And sir, second, I think, sir, if you can clarify on the carbon cost impact in Europe that we had in 2Q. I missed that comment. And what is the outlook for carbon cost in the second half in Europe?

T V Narendran — Chief Executive Officer and Managing Director

Koushik?

Koushik Chatterjee — Executive Director and Chief Financial Officer

Yeah. So I — what I mentioned is that there has been no trading of carbon emission rights in the second quarter. We had repaid it. We have repaid our obligation or settled the obligation in the first quarter of what we sold in the previous year when the COVID crisis was at peak and we liquidated some of our carbon rights. So all that I mentioned is, our going forward position is not to trading in the ordinary course of the business. We have banked what we have got as fee allowances and those free allowances are kept for compliance purposes. That was my point. And the last point is that there were some hedges on account of — on the account of the CRs. And some non-cash provisionings have been made in this quarter, and — which will ease out in the coming quarters.

Ashish Jain — Macquarie — Analyst

Got it. Got it. Koushik, we still remain on track to levy carbon-related surcharges and all after the first EUR12 number that we have put? And what’s the feedback and acceptance of that? And is there a case to think that that number can be raised further?

T V Narendran — Chief Executive Officer and Managing Director

So, that is what we had put in. We were the first to put in. Now the others are also doing something similar. So that sticks. And we have a formula by which we calculate that. Based on our allowances, the carbon price etc., and just now, we’ve not felt the need to revise it, but if the carbon prices go up anymore, then we will certainly revisit it.

Koushik Chatterjee — Executive Director and Chief Financial Officer

Just to add, it’s also linked to what our exposure is to external carbon purchase. And that’s — so it’s a fairly calculated approach towards it.

Ashish Jain — Macquarie — Analyst

Okay, got it, got it. Thank you so much.

Operator

Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.

Indrajit Agarwal — CLSA — Analyst

Hi, good afternoon. Thanks for the opportunity and congratulations on a good set of numbers. I just wanted to understand the Indian steel trade environment that you’re seeing currently. We have seen the domestic market, the demand is slightly picking up, but export prices falling off the cliff. And along with that, our quota to export it to Europe has been exhausting. So do you think more material gets diverted into India given that Indian prices are now at maybe in line with other [Indecipherable] premium in parity. Does that put pressure on domestic steel prices?

T V Narendran — Chief Executive Officer and Managing Director

So, Indrajit the — from a Tata Steel point of view, we were exporting 16%, we will export 12%. So it’s not that we have to sell a lot more volume in the domestic market. I think we are comfortable selling what we need to. If you look at some of our peers, yes, they’ve been exporting more. They probably will sell more in the domestic market. But we expect H2 demand to more than offset this diversion. And as of now, there is no real imports coming in either. So to that extent, I think the Indian market in the second half should be able to absorb any diversion being done by the industry from exports to domestic markets. So that’s the way we see the situation.

Indrajit Agarwal — CLSA — Analyst

Sure. Thank you. That’s helpful. One follow-up actually sounds serious, but just to understand, after the $100 per ton increase that we are likely to see in coking coal in third quarter, we will be closer to market price or what is the current spot price? Or that’s how we should think?

T V Narendran — Chief Executive Officer and Managing Director

No. So, normally we look at what is the price we buy and the consumption how it flows through. So what we are giving guidance is based on what is already contracted and in place. And normally we have two months to three months of inventory also in the system. So I think — and there is also — it’s very difficult to correlate it exactly to the market price, because all of us buy different blend. And one of the — I think one of the virtues that we think we have is that we are able to make do with a good blend, the most optimal blend. And that’s a very technical subject where we look at what is the most value optimal blend that we can use. So it won’t be easy to correlate $400 of this, but when we tell you $100, this is factoring in the blends that we use, etc., etc.

Indrajit Agarwal — CLSA — Analyst

Sure. That’s helpful. Thank you, Naren.

Operator

Thank you. The next question is from the line of Rajesh Majumdar from B&K Securities. Please go ahead.

Rajesh Majumdar — B&K Securities — Analyst

Yeah, thanks for the opportunity, sir. Sir, I just wanted to do know, there is a increase of about INR4,000 crores in the other expenses in the quarterly basis on the consolidated numbers, and you accounted for about INR1,000 on account of royalties, and about INR1,192 crores on account of FX. What is the balance INR1,800 crores on account of?

T V Narendran — Chief Executive Officer and Managing Director

Just give us a minute. Koushik, you want to take it? Yeah, I’m asking one of my colleagues, Sanjeev to explain. Yeah. Sanjeev? Yeah.

Sanjeev Biswas — Head Sales, New Materials Business

In addition to that two items that you explained, about royalties and FX, Rajesh, there are other exponentials like — there are around INR300 crores other expenditure in Europe, because of energy and repair and maintenance costs. Similarly, there is an increase in expenditure in store consumption and repair and maintenance in Tata Steel also, which is — we did not mention in the point that you just elaborated, two major points. And also in other subsidiaries like TSML, which was — which is also having a higher expenditure this quarter of around INR159 crore. So the — other than those two, these are three, four major items around [Technical Issues], which has contributed to that increase that you are seeing in the other expenditures.

Rajesh Majumdar — B&K Securities — Analyst

Right. So some of these are basically going to be recurring, right? So we will see higher other expense going forward?

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

So, just to clarify, some of these are recurring, some of these are not. If you see some of the bulk of the expenditure, so INR1,100 crores, which is FX really depends on the FX movement, across currency. So you can’t really say it’s recurring, and you — if you’ve tracked our results, you would see that sometimes it’s a gain, sometimes it’s a loss. So that is changing. In terms of the increase in royalty which we talked about, about INR500 crores recurred this quarter on account of BSL, will no longer be there because now with the merger, we don’t have to pay that. So some of these are not recurring and some — so, I wouldn’t say that that they are all recurring.

Rajesh Majumdar — B&K Securities — Analyst

Right.

Sanjeev Biswas — Head Sales, New Materials Business

And those two big expenditures what you mentioned, those are not — those are non-recurring. As I told, repair and maintenance project depends. One [Technical Issues] mentioned, there was just [Technical Issues] around INR400 crores, probably because of a breakup movement between last quarter and this quarter.

Rajesh Majumdar — B&K Securities — Analyst

Okay, thanks. And my second question was, the Company’s probably going for a maintenance shutdown in 3Q in the domestic operations. Is that correct?

T V Narendran — Chief Executive Officer and Managing Director

I think somewhere we mentioned that the hot strip mills have some shutdowns, but those are regular short shutdowns, nothing very major. That’s why our Q3 volumes are similar to Q2.

Rajesh Majumdar — B&K Securities — Analyst

Right. So there won’t be any significant drop in production?

T V Narendran — Chief Executive Officer and Managing Director

No, no, no.

Rajesh Majumdar — B&K Securities — Analyst

Okay, thank you.

T V Narendran — Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Bhavin Chheda from Enam Holdings. Please go ahead.

Bhavin Chheda — Enam Holdings — Analyst

Yeah, good afternoon, sir. Sir, you’ve mentioned that Europe operation…

Operator

I’m so sorry to interrupt, may I please request you to speak a bit louder, sir, so that your audio is clearly audible.

Bhavin Chheda — Enam Holdings — Analyst

You can you hear now?

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Yes.

T V Narendran — Chief Executive Officer and Managing Director

Yeah.

Bhavin Chheda — Enam Holdings — Analyst

Yeah. Sir, you mentioned that Europe used to export 1 million ton to US, which was down by 50% earlier due to the tariffs import by US, which is not there. So you’re saying that Europe operations will have that opportunity to increase exports one? And second is now since you are already exporting, there was some tariffs in US, which won’t be there. So your profitability for exports to US would improve going forward?

T V Narendran — Chief Executive Officer and Managing Director

So, couple of things. We sell multiple steels to Europe, coming to US from Europe. One is the packaging steel, which actually what we supply was not being made in the US. And so I think as far as I remember, their the permissions were taken by the customers to allow us the exemptions and that’s why we used to sell. What dropped is, largely the exports that we used to do the engineering segment in the US, which is what shrunk over the last three years because of this 232. So we have an opportunity to go back into those markets because as you know the prices in US are higher than the prices in Europe. And we have some good equity with the customers there. So, it allows us an opportunity to sell more into the US in segments, which we had vacated over the last couple of years.

Bhavin Chheda — Enam Holdings — Analyst

Okay. Thank you.

T V Narendran — Chief Executive Officer and Managing Director

Thanks.

Operator

Thank you. The next question is from the line of Ashish Kejriwal from Centrum Broking. Please go ahead.

Ashish Kejriwal — Centrum Broking — Analyst

Yeah, hi. Good afternoon. Sir, just two clarification. In one of the questions, Koushik mentioned that we have done some hedges and non-cash provisioning in Tata Steel Europe in Q2, which will release in Q3. So is it possible to quantify? And whether that is included in EBITDA numbers which we have quoted?

Koushik Chatterjee — Executive Director and Chief Financial Officer

No. Can you hear me?

Ashish Kejriwal — Centrum Broking — Analyst

Yeah. Yeah, we can hear you.

Koushik Chatterjee — Executive Director and Chief Financial Officer

So those non-cash provisions are currently in the OCI and not in the main financials, and that’s how it will remain. So it’s not included in the Q2.

Ashish Kejriwal — Centrum Broking — Analyst

Okay. And secondly sir, in terms of coking coal cost which you mentioned that incremental cost will be $100 per ton, so is it possible to mention of what could be the coking coal cost per ton of steel, because we are using different blends, so since about the venture [Phonetic] could be different?

T V Narendran — Chief Executive Officer and Managing Director

So again, it depends on the blend in different plants is different cost. We also have in some plants we use more of our own domestic ore, which is at a very different cost. So it will be difficult to give you one single number. But typically, coal costs are 40% of the overall cost, just to give you a sense. But if you want a more precise number, I’ll ask Samita to comment it.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Yeah. I mean, it’s the math which you’ll have to do, because this is just the cost of purchased ore. And as you know, we have our own ore as well on the ore side. So it will be a combination of that, and it actually changes quarter-by-quarter depending on how much we use of purchased one and own coal, which is also affects an operating decision really.

Ashish Kejriwal — Centrum Broking — Analyst

Sure. So is it possible to share what it was in Q2 or whatever number we can get?

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

No. We don’t really get into these details, because it will change every quarter. But roughly, we are at about 20% at a very broad number. It’s about 20% of our own ore and the balance is purchased in India.

Ashish Kejriwal — Centrum Broking — Analyst

Sure. Got it. And sir lastly, are we seeing any risk of decrease in steel prices in India because now we are at higher than the import parity basis?

T V Narendran — Chief Executive Officer and Managing Director

So I think — for now, I think the demand pickup is expected to be strong in H2. So that is one. Secondly, while just now we may be about import parity, but even if somebody delays to import today it’s going to take two months to three months for it to come, right to even some of the offers you’re hearing about for Jan and Feb shipment in Southeast Asia and Turkey and places like that. So I don’t think this is going to have an impact in India at least for the next — this quarter and next quarter.

Ashish Kejriwal — Centrum Broking — Analyst

Sure. Thanks. Thanks, and all the best, sir.

Operator

Thank you. The next question is from the line of Pinakin from JPMorgan. Please go ahead.

Pinakin — JPMorgan — Analyst

Thank you very much, sir. Sir, just trying to understand that while you have mentioned a lot on the European, last one is to DRI and hydrogen. At this point of time, sir, what is the campaign — when does the campaign life furnaces end over there? So I mean, trying to understand the timeframe at which the decision would have to be taken?

T V Narendran — Chief Executive Officer and Managing Director

No. So there are two things to consider. One is the timeframe of the blast furnaces life, and the other is a timeframe in which you have gas and other facilities available to make the transition. So we will have to find. So there are two blast furnaces in operation in Netherlands, one which is due for a realigning in three years and another, which is due for a realigning maybe after few more years. So we will time it. Just now it doesn’t look like the infrastructure, the supplies and everything else will be ready for us to time it with the immediate realigning, but the subsequent realigning is probably, which is after 2025 when we think the timing will be better.

Pinakin — JPMorgan — Analyst

Sure. And just to understand this point better, Tata Steel take a decision independent of what others are doing in Europe because given what the experience with gas this year. If somebody was on a gas-based DRI in Europe versus the coking coal-based blast furnace, the cost structures could have been very different. Or would Tata Steel take a decision in Europe based on what the peer set is picking?

T V Narendran — Chief Executive Officer and Managing Director

Absolutely. I think, obviously, we will look at the economics of it and that’s where the conversation with the government is also important because this transmission cannot be done in isolation. There is no point making this transition if the costs are very different from the existing process routes and is not supported by the government. Because ultimately the business has to be viable through the transition, and after the transition. So we will evaluate all that before we take the final call. I agree with you that today’s gas prices don’t suggest that even today’s carbon price can bridge the gap. But things are evolving.

Pinakin — JPMorgan — Analyst

Understood, understood. Thank you very much, sir.

Operator

Thank you. The next question is from the line of Ritesh Shah from Investec Capital. Please go ahead.

Ritesh Shah — Investec Capital — Analyst

Hi, sir. Thanks for the opportunity. Sir, just wanted to check on the capex break up, which you indicated INR10,000 to INR12,000 crores. If you could give broad numbers between India and Europe. And specifically for Europe, I just wanted to understand, there has been a new project, which has been announced called Road plus — Roadmap+…

Koushik Chatterjee — Executive Director and Chief Financial Officer

Roadmap+, yeah.

Ritesh Shah — Investec Capital — Analyst

Right. So is this something which is already included? Or is it something over and above that?

Koushik Chatterjee — Executive Director and Chief Financial Officer

Currently that Roadmap+ spend is not much. And the overall spend is about — multi-year spend is about EUR300 million. What you see currently is largely the sustenance and critical capex in Europe, nothing of majorly on any of the decarbonization capex. Over the next three years it will — three years or four years, actually it will be spend on the Roadmap+, which is essentially on reducing the environmental load on multiple projects. It’s not one project, it’s multiple projects.

Ritesh Shah — Investec Capital — Analyst

Thank you. And sir, second question was the loans which we have given to the overseas entity. How should one look at it? I’m just looking it in conjunction with our earlier commentary that we won’t be lending or deploying much capital or we won’t be deploying any capital into overseas assets, specifically Europe. So if I had to put these two variables together then how should we understand it?

Koushik Chatterjee — Executive Director and Chief Financial Officer

So I think, the point that was made is we don’t want to put additional capital into the business of Europe, but the balance sheet is one, right. So the balance sheet, whatever debt is in Europe or Singapore or India is all in the consolidated balance sheet. So if we are going to do deleveraging and derisking of the business as such, then it includes essentially taking up those loans from the balance sheet. So that is the point. So accounting-wise it is — it has to go through the certain route via the holding companies, etc. But fundamentally, it is money for deleveraging. So it’s internal capital or internal equity being used to external debt.

Ritesh Shah — Investec Capital — Analyst

Correct. And sir just one clarification. 15% ROC what you indicated, you’ve stated it’s only for India, right?

Koushik Chatterjee — Executive Director and Chief Financial Officer

Yes, yes.

Ritesh Shah — Investec Capital — Analyst

Okay.

Koushik Chatterjee — Executive Director and Chief Financial Officer

I mean if you look at the European cost of capital and the return levels are very different. So that 15% CRR, because the incremental capital investment, the heavy lifting of that capital will largely be in India for growth.

Ritesh Shah — Investec Capital — Analyst

Okay. Perfect, sir. Thank you so much and wish you good luck.

Koushik Chatterjee — Executive Director and Chief Financial Officer

Thank you.

Operator

Thank you. Before we take the next question, I would now like to hand over the floor back to Samita Shah.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Yeah. Thank you. We have some more questions on the chat. So we will just take a couple of questions before we end the call. The first question is on the recycling plant, which we have announced in India. It says, can you provide an update on the 5 million ton recycling plant? So I don’t think it’s one plant, but…

T V Narendran — Chief Executive Officer and Managing Director

Yeah, so basically the first plant is 0.5 million tons, which is already commissioned and operational in Rohtak and functioning. And I think it’s working well. So we had basically said that over the next few years we want to set up 5 million tons of recycling capacities. It will be multiple plants. We are looking at sites in Western India and Southern India. Basically, the thinking is in North, West and South where there is scrap available, we will set up such facilities. So over the next few years we will do more of these plants.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Thank you. There is a next question, which is about investments into renewables. Is it a cheaper capex option than your current power plants?

T V Narendran — Chief Executive Officer and Managing Director

So in a steel plant, there are multiple points to be kept in mind. A lot of our power plant — power plants are run using gases if we generate from the process. So that’s pretty much the best option available, because already those gases would be flared, right. So that is one. So there’s only a smaller part of it which is using coal and even that coal and lot of it comes from the tailings and middlings, which are basically the lower quality coal, which is generated when we mine metallurgical coal. So when we look at renewables, we look at supplementing what we have. And second point is to run a steel plant, you need a lot of peak loading. Energy is not a steady load. So you need — so renewables cannot fully substitute because then you need to have storage facilities, which are not available today at scale to help with the fluctuations of requirement in the steel plant. So renewables will be a component of it, but cannot replace this totally.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Thank you. There is one question, it’s actually, I think is more addressed to Tata Sons, but I will take it since multiple people have asked. The Tata Sons’ plan to increase promoter stake in Tata Steel.

T V Narendran — Chief Executive Officer and Managing Director

I think you’ll have to ask Tata Sons that.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

So, with that we will just take — I think there are couple of more analysts left, so we’ll just take those questions before we close the call. Back to you, Janice.

Operator

Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Sir, my question is answered. Sorry, thanks.

Operator

Thank you. The next question is from the line of Kirtan Mehta from BOB Capital. Please go ahead.

Kirtan Mehta — BOB Capital — Analyst

Thank you, sir, for the opportunity. On the recycling route, the plant that you’ve mentioned, could you tell us at what volume level it is operating? And what is the sort of cost of operation, as well as the margin in that particular plant?

T V Narendran — Chief Executive Officer and Managing Director

So, currently, I mean, they’ve just started. They’ve started in the sense they’ve started part of the plant last year, but the commissioning engineers couldn’t come for the shredder. They’ve just come and commissioned the shredder. I think so far in the last few months, we’ve done about 60,000 tons. I’m not — it’s positive margin, but I’m not remembering the exact number. And, but basically more than anything else, I think we are looking at scrap as being strategic and input as iron ore is over the next few decades. And that’s why we’re investing in this value chain.

Kirtan Mehta — BOB Capital — Analyst

Right. Sir, and the second question was about the overseas business. What is the current first half breakeven in the European business, and what is the progress on the cost initiatives? And how would that impact the breakeven cost going one-year or two-year down the line?

T V Narendran — Chief Executive Officer and Managing Director

I think basically, when you look at the breakeven cost, obviously, a lot of the cost are the input costs. So we have to look at it from that perspective. So the way we see it is, the Netherlands business has always been EBITDA positive, and 99% of the time cash positive. So largely the Netherlands business is pretty much able to stand on its own. The UK business is where we’ve had a challenge, but the UK business has been either slightly negative EBITDA or positive EBITDA over the last few years, and now moving more and more to positive territory. And hopefully by the end of this year, we will be cash positive as well. So I think that’s the way we are looking at it, and we manage it from that perspective.

Kirtan Mehta — BOB Capital — Analyst

Sure, sir. Just to understand this further better, [Technical Issues] mentioned around INR220 crores [Phonetic] to INR250 crores [Phonetic] is sort of a breakeven cost. And then you had outlined the initiatives of around taking out INR3,000 crore of cost.

T V Narendran — Chief Executive Officer and Managing Director

Yeah.

Kirtan Mehta — BOB Capital — Analyst

So, is there any change around this? Or is there any status update on this, sir?

T V Narendran — Chief Executive Officer and Managing Director

No. So I think — okay, what we said is, when we look at the long-term viability of these businesses, we take a spread of GBP225 per ton — the EUR225 per ton, right. So that’s the long-term spread that we’ve planned for. Obviously, spreads today are much higher. So when we look at the competitiveness of those businesses we say that if you assume EUR225 spread, do we — are we cash neutral or cash positive? And all our transformation programs are looking at that. But today’s rate is much higher. So if you look at it from that point of view, yes. EUR225 would be the long-term spread on the basis of which we want to be viable.

Kirtan Mehta — BOB Capital — Analyst

Sure. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Ms. Shah for closing comments.

Samita Shah — Vice President, Corporate Finance, Treasury & Risk Management

Yeah. Thank you. Thank you everyone for your participation and your engagement. Look forward to being in touch. And we will meet again in this forum next quarter. Thank you.

Operator

[Operator Closing Remarks]