Six months after buying a majority 60 per cent stake in Zimbabwean steel company Zisco, Essar Steel is now keen to build on Zisco’s foundation and ramp up the existing infrastructure.
According to data available on the website of World Steel Organisation, only eight steelmakers produced over 20 million tonne (mt) steel in 2009 with ArcelorMittal, leading at 77.5 mt. Tata Steel, including Tata Steel Europe was seventh with 20.5 mt production.
Essar is currently at 14 mt, and has drawn up plans to be a 25-mt steelmaker.
“The visibility of steel is now based on raw materials. Zisco is going to be an integrated steel company with iron ore, coal, steel and distribution, all at one place. And it is only in Africa that you will get everything together,” said Malay Mukherjee, CEO, Essar Steel, while speaking to Business Standard.
Even though the iron ore and coal reserves are still being assessed, most analysts say there is enough and more for Essar’s own requirements. And it is due to these natural reserves that Zisco saw competing bids from global steel giants, including ArcelorMittal.
The Zimbabwean steelmaker has only a one mt steel plant, which Essar plans to revive and then expand. Last week, the employees of Zisco were paid their first wages in two years. Mukherjee said, “We have signed the agreement and the condition precedent of the deals are getting fulfilled.”
Mukherjee doesn’t think the odds will be stacked against him. “When we began our Gujarat operations, nobody thought Hazira will be a 10-mt plant either,” he explained.
However, even for Essar, home is where the money is. In the next three years, it will a key source of revenue for Essar Steel with its flagship steel plant at Hazira, Gujarat, becoming 10 mt at the end of 2012. Algoma — Essar’s four-mt Canadian subsidiary — is also getting fully integrated with Minnesota iron ore mines and Trinity Coal coming on full stream.
After that, Algoma will be second most important revenue-earner. Indonesia — where the company has a small steel mill operation — will follow and finally, there will be Zisco. By 2016, the pattern will change. “If you look at the investments, then Zisco will be a priority because in India, we will have already finished our investment cycle and it will be time to get results.” So, Zisco will eventually overshadow Algoma.
Essar had signed up numerous MoUs with Jharkhand, Chhattisgarh, Orissa and Karnataka for setting up steel plants but it was the acquisition of Zisco that made it redraw its production strategy.
Mukherjee said, “The 25-mt vision came after we got Zisco. There are different projects that we are looking at in India. It is a chicken and egg story. You will not see equipment ordering unless there are commitments on raw material from the government.”
As part of the global strategy, Essar will also be ramping up steel production at its Algoma plant to four mt from the current three mt but the management is waiting for the demand to revive in the west to bring the idle blast furnace into the picture.
He said, “The strategy (for Algoma) is well defined. I will have Minnesota to supply ore. Trinity will supply steam. So, I have securitisation of raw material. We have revamped one of the blast furnaces and kept it ready. But one has to understand that I have to be cost effective also to be in the market.” With raw material in house, Algoma’s product pricing will be more competitive than many of its rivals who lack captive supply sources and are therefore more vulnerable to price fluctuations. Essar expects Minnesota iron ore mines to supply raw material from January 2013 but till 2015, it will also have to honour its contractual obligations with Cleveland.
Trinity is already supplying but its annual production too will be taken up to 3 mt from 1 mt now and that in turn, would mean a ramped-up Trinity taking care of 70 per cent of Algoma’s coal requirements.
These plans panning continents and geographies is only one half of its integration blueprint. Essar wants to capture the entire value chain globally. Therefore, it’s service centres, located in India, UK and Dubai, too, are being expanded. From the current capacity of 2.5 mt, the company is ramping the capacity to 4 mt with Vietnam, the latest addition to its portfolio.
“For our exports, we also want to create the service centre concept. We already have bought land in Vietnam and are in the process of setting up the service centre. In Dubai, it is already commissioned, which will cater to the West Asian market.”
In India, the company has four service centres as of date and is commissioning three more in Bhuj, Kolkata and Indore. The Hazira plant, due to its proximity to the port, is looking to export one-third of its total steel production. The company is currently doing close to 1.5 mt of steel exports.
The share of exports will go up as and when it adds more capacity. Mukherjee concluded, “By the end of the current financial year, we will be at 8.5 mt and by December 2012, at 10 mt.”