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Interaction | December 2013

Steel mills in India are struggling to source raw materials

Speaking on whether the pullout of steel majors ArcelorMittal and Posco will have any impact on steel production, Ravi Singh, Senior Vice President, Essar Steel, in an interview with ELIZA WAGHMARE, said that India's steel production is 78 mt as against a capacity of 90 mt.  

In terms of demand and supply and growth rate, how do you view the current scenario in the steel sector?
 Indian steel demand is currently growing around 3.5 per cent. Normally steel demand grows at 1.2 times the GDP. But it has fallen below GDP growth level. A host of factors have contributed to lower rate of growth in demand such as higher cost of funds have reduced the demand for consumer durables and auto, higher imports from FTA countries, no new large investments, lack of growth in infrastructure development, to name a few.

 

Do you think that the liquidity is a major concern for Indian steel producers?
 Over all tight liquidity position in the economy has affected the demand for goods and services.

 

Do you think that the pulling out of steel major like ArcelorMittal and Posco would affect the Indian steel production?
 India's steel production is 78 mt against a capacity of 90 mt. Indian steel mills are struggling for sourcing raw materials. It is important to ensure that exiting plant are provided requisite raw materials before new investments are made in the steel sector.

 

Will this fallout affect the overall target (220 mt by 2020) of Indian steel industry?
 There is no point in creating capacity for the sake of creating capacity. At the current rate of growth in demand, it is possible to achieve a demand of 220 mt by 2020.

 

Further, to add additional capacity of 130 mt, the investments required are in the region of over $150 billion. With the availability of land becoming difficult, regulatory approvals becoming difficult and no access to raw material source, it is unlikely that the target will be met.

 

Have you already acquired any raw material linkage for your expansion plans?
 Essar Steel has long term arrangements with NMDC and private miners for supply of raw materials. Moreover, Essar Steel has the technology to use low grade ore and ore fines which is abundantly available in the country. In any case, we have submitted our request to the government for allocation of mines.

 

What are the various quality control measures taken by the company to ensure good quality steel for its clients?
 Essar Steel has set up the state-of-the-art steel making facilities. The products conform to quality norms of international agencies. The quality of steel has also been approved by majors steel consumers like oil majors, auto majors, yellow goods manufacturers, etc. This has been achieved through internal research and development and working closely with customers to develop new grades to suit their requirement. Today, Essar Steel produces over 300 grades of steel to meet any steel requirement of user industries.

 

Tell us about the capacity utilisation. Do you have any plans to expand the plant's capacity to meet the increasing demand?
 Essar Steel has set up a 10 mt plant at Hazira on the west coast of India. In addition, we have invested in 5 mt wide plate mill, one of its kind in India, pipe mill, steel processing facilities in seven location across India and over retail outlets to cater to SME segment. Currently our focus is to manufacture high value added products. The plant location is well connected by a captive port, road and rail connectivity. Thus we are fully geared to meet the rising demand for steel in India.

 

Essar Steel plans to raise Rs 2,241 crore by selling 3 non-core assets. Please elaborate more on this. In order to improve liquidity, reduce debt burden and to focus on the core business area, a financing plan has been worked out. Under this plan it is propose to sell out or otherwise transfer some of the undertakings to strategic special purpose vehicle (SPV) company, on-going concern basis backed by long term supply agreement with such SPV company to ensure smooth functioning of operations. These are non-core assets to steel making and forms insignificant part of the total assets of the company. Essar Steel proposes to outsource these assets since it can be operated more efficiently by the company's specialising in these activities.

 

Logistics is an issue to address at various forums; however, it has never been given the importance which it wants. What needs to be done to see that the steel consignment reaches on time on a particular project to avoid time and cost escalation?
 India needs to invest in infrastructure to address not only logistic issue but also bring down cost of transportation which is one of the highest in the country. Otherwise infrastructure itself can become a stumbling block for growth. But we have largely addressed this issue by locating ourselves on a port.

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