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| It's curtains for major standalone steel players |
| Ishita Ayan Dutt / Kolkata Sep 07, 2009, 01:39 IST |
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The main reason for the move is the volatility in prices and inconsistent supplies for value-added grades
The Uttam Galva-ArcelorMittal deal is the second consolidation move in the steel industry in the past month, the first being Essar Steel’s acquisition of Shree Precoated.
The main reason for the move, led by cold rolled (CR) and galvanised steel makers, is the volatility in prices and inconsistent supplies for value-added grades. No surprise, therefore, that Uttam Galva was the last major standalone CR and galvanised player.
Ankit Miglani, director (commercial), Uttam Galva Steels, said the company was eyeing consistent supplies from ArcelorMittal. The steel company has been sourcing 60-70 per cent of raw materials from different ArcelorMittal facilities over the past year.
Miglani explained that the company’s galvanised line, set up last year, was designed for high-end products. For supplies to original equipment manufacturers, the company required a steady source of consistent raw materials, the target being high-grade steel supplies to the automobile and white goods sectors.
Uttam Galva has a backward integration project in Orissa, which is in the land acquisition phase, but the project is still far away. So, the co-promotion deal with ArcelorMittal, the world’s largest steel maker, was waiting to happen. For Miglani, this was as good as backward integration through the inorganic route.
With most primary steel producers — Tata Steel, Steel Authority of India Ltd (SAIL), JSW Steel, Essar Steel and Ispat Industries — manufacturing CR and galvanised steel, it was difficult to be a standalone player, said Bhushan Steel Managing Director Neeraj Singal.
Bhushan Steel produces about 1.4 million tonnes of CR and the company’s backward integration project in Orissa would be commissioned shortly. By October-December, the company would have 2.4 million tonnes of hot rolled (HR) steel, the key input material for CR.
Singal said the difference in price between HR and CR was Rs 5,000-6,000, while the cost of conversion could go up to Rs 3,000 a tonne. Once Bhushan’s HR production goes on stream, profitability per tonne of CR would increase by Rs 4,000-5,000 a tonne.
Essar Group Director Jatinder Mehra also said it was difficult for a standalone cold roller and galvanising player to survive. Essar bought Shree Precoated Steels, which produces colour-coated steel, CR and galvanised steel.
For Essar Steel, it made good sense to acquire Shree Precoated, making it the country’s largest CR manufacturer, with an annual capacity of two million tonnes. Essar was already manufacturing a million tonnes of CR at its Hazira facility, but with the acquisition came the colour-coating steel used in roofs, facades, etc. The colour-coating steel market is growing rapidly at an average 30 per cent yearly.
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