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| 'Our focus on smaller towns is paying off' |
| Suveen K Sinha & Ajay Modi / New Delhi Oct 02, 2009, 00:24 IST |
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 In the three and a half years that S K Roongta has been at the helm of state-owned Steel Authority of India as its chairman, the steel sector has seen it all: Announcements of mega investments, projects getting stuck, sharp swings in prices, and the government last year taking the unusual step of trying to talk down steel prices when inflation was zooming. SAIL, having rationalised its manpower, has embarked on a plan to nearly double its capacity. In his large, wood-panelled office from which one can see nearly half of New Delhi, Roongta looks in control. The memories of his elevation to the post of chairman, which almost got caught in political wrangling before his clean record clinched the issue, have faded. In a conversation with Suveen K Sinha and Ajay Modi, Roongta chose to look ahead. Edited excerpts:
How have SAIL and the steel sector changed since you became chairman?
Things are good. Everyone has realised that the steel sector is crucial for the economy and infrastructure.
… not to mention politically-sensitive…
(hesitates) During the first half of 2008, both raw material and finished steel prices went through the roof due to a global upsurge in demand. While finished steel prices touched a new peak of $1,400 a tonne, the prices of raw materials such as coking coal touched a high of $300 a tonne. However, a dramatic collapse in prices took place in October last year. The rise in prices was too rapid and even though companies were making good profits, it was not a healthy situation. The sudden price rise induced speculative element in trade and encouraged hoarding. After a depressing period of three to four months, we are seeing very good growth. Companies have announced large investment plans and some investments are already taking place. Demand has been high ever since China started buying in a big way.
But now there are indications that Chinese steel, cheaper than Indian steel, may be landing on our shores and putting pressure on you.
Well, yes and no. The rise in hot-rolled coil prices in the last three months has happened both in India and elsewhere. However, prices came under in September following a 22 per cent surge in August production in China. It is not possible for everyone to import. One has to order at least one shipload of steel and imports need to be planned in advance. By contrast, the domestic producers have an advantage as they can make prompt supplies at the consumption point. So even though the prices in China are lower than the domestic price — by $40-50 a tonne in the case of hot rolled coils — I do not think major quantities will land. But import does affect us since it sets a benchmark price and puts pressure on domestic prices. Customers cite the import prices to bargain. In most cases, we have been able to match the Chinese prices even though it has affected margins.
How secure are you in terms of key raw material supplies?
We are fully independent insofar as iron ore is concerned. Once the lease on the Chiria mine (in Jharkhand) is renewed, SAIL does not need to worry about iron ore for at least 50 years. But we are not fully covered in terms of our coking coal consumption. Only 5 per cent of our requirement is being met from captive sources. Another 25 per cent is being procured from Coal India, while the remaining 70 per cent is being imported. We plan to develop more indigenous coking coal mines as our consumption will increase from 15 million tonnes to 26 million tonnes on expansion. In fact, we are developing two coal mines in Jharkhand and this will raise our captive supply to 7 per cent.
What is the status of your expansion?
We have a capacity of 14 million tonnes a year at the moment. This will increase to 23 million tonnes by 2012. We are investing Rs 37,000 crore in this expansion and another Rs 23,000 crore in technology upgrade and modernisation at the existing plants. Though other players are also expanding, we will remain the largest producer in India.
What is the status of the Chiria mines lease?
Chiria is important for our growth plans. We expect an amicable settlement with the Jharkhand government. Of the 10 mining leases, six are under deemed extension and four are disputed. We retained Chiria (which came to SAIL when it acquired IISCO) for all these years. However, we could not make fresh investments and utilise the resources since IISCO was sick. Meanwhile, private players began eying Chiria since iron ore was increasingly becoming a hot property. Now, IISCO is no longer sick and we are ready for investment just as the others are.
In January last year, SAIL had formed an equal stakes venture with Tata Steel for mining coal in India. How has the experience been for you?
The joint venture had applied to Coal India to revive some of its abandoned and closed mines. The venture has been shortlisted in the first round and we are now waiting for the next stage. We have been successfully running another joint venture, Mjunction, a steel trading portal. We are working with perfect understanding.
What is International Coal Ventures Limited (ICVL) up to?
ICVL is a special purpose vehicle formed by SAIL, NTPC, Coal India, NMDC and RINL. It has appointed some investment bankers to advise on potential acquisitions. The company had bid for some properties, but did not succeed. However, efforts are on.
Isn’t branding catching on in steel? And value addition?
Gradually, steel is shifting from being purely a commodity to a customised product. Steel today touches every household. It is turning into a branded product and we are establishing SAIL as a brand. The percentage of branded produce in our total sales is rising year on year. Our approach will be to expand the production of value-added steel as the segment has been clocking a demand growth of 25-30 per cent. Currently, only 7-8 per cent of our produce is value added but we aim to expand it to 35 per cent.
SAIL started focusing on smaller towns a few months ago. How is it paying off?
There has been a focus on the hinterland areas — smaller towns and blocks. We have already expanded rapidly and have presence in more than 600 districts. Our distribution strategy has paid off. We are able to meet the specific requirements of customers in terms of grade and size and provide them ready-to-use products. A few years ago, customers had to fit in their requirements within the standard grades available. As a result, our products command a premium of Rs 2,000-5,000 a tonne. It is a competitive market and nobody wants to lose an order of even few hundred tonnes.
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