Migration to value added-steel gaining pace

The benefits Tata Steel is reaping by progressively moving away from commodity steel to value-added products (VAPs) have encouraged other leading steel producers to follow the de-commoditisation route. And, the shift would gain pace, as some recent announcements by steelmakers in this regard show. In VAPs, steel producers are hopeful of finding a way to protect their bottom lines amid challenging circumstances.

The transition to VAPs can be nothing but rapid, with all types of steel users-from house builders requiring ribbed bars to galvanised roofing sheets to automakers-needing high-strength ultra-low alloy material becoming increasingly demanding about quality. Since the breakout of the 2007-08 recession, steel has remained in the buyer's market globally; and, it will be some time before the broad metal market regains some kind of equilibrium on demand improvement. Expect steelmakers to be responsive to buyer demand. In value addition, some producers see scope for a rise in the market share of high-end products by way of import substitution.

Of the country's steel imports of 7.9 million tonnes (mt) in 2012-13, auto grade varieties accounted for about three mt. Unsurprisingly, due to the scope for localisation in auto steel, Tata Steel has formed a joint venture with Nippon Steel, the world's second-largest steel producer, to make for the first time in India 600,000 tonnes of auto cold-rolled steel using continuous annealing and processing line. The venture, at Jamshedpur, is to source steel from Tata Steel, where newly commissioned 2.9-mt capacity is dedicated to flat products. In 2012, Posco alone imported 1.34 mt of steel, much of that auto grade, from its South Korean plant. Steel requirements of Indian users in right sizes and quantities, without these being required to maintain high inventories, are met through a growing chain of service centres.

Besides Tata Steel, three other steelmakers in the private sector - JSPL, JSW and Essar - have plans in place to play an increasingly bigger role in VAPs. JSPL sales and marketing director V K Mehta says his company will be making head-hardened rails to facilitate the running of high-speed trains, as well as steel for making windmill tower plates. Mehta claims JSPL will be in a position to supply such rails at a good discount to prices quoted by Japanese producers. That may be true, but JSPL must not overlook Bhilai Steel Plant further reinforcing its position in the sector by building a 1.5-mt universal rail mill that will allow making extra-long rail panels of up to 520 m. We are aware of the pressing need for laying robust tracks to allow running of trains at 200 km/hour. But Indian Railways stands as an example of chronic underinvestment in infrastructure. In any case, head-hardened rails will stand for a good degree of value addition.

Essar, too, is emerging as an important VAPs player. It finds these products "less volatile and less exposed to market vagaries" than commodity steel. Tata Steel has been practising it for long; slowly, realisation is dawning among other leading groups that investments in VAPs will yield desired results, provided these are backed by focused marketing and processing centres close to major consumption points. JSW, in partnership with Marubeni Itochu, is creating a 180,000-tonne processing centre (expandable to 360,000 tonnes) in the automobile hub of Pune.

As governments in many countries are becoming increasingly strict with regard to vehicle carbon emissions, automobile designs undergo revolutionary changes from time to time. Aluminium and carbon composites are seeing good openings in the automobile sector, in which the focus is to make cars lighter to improve fuel efficiency. The Audi8 and Jaguar XJ models have all-aluminium bodies. Also, there is the hybrid car body combining aluminium and steel. So, Indian groups venturing into auto steel and those already making it will have to be constantly innovative to fend off competition from alternative materials.

Production of value-added steel requires the application of technology not available to secondary steel producers and, therefore, is niche play. In fact, for some VAPs, the country cutting a profile leading to import substitution will depend on its steelmakers' ability to secure technologies from abroad. Many of these technologies are closely held and foreign groups will only allow these to be used here provided they get a good deal. But how do primary steelmakers get a distinctive identity for products between commodity steel and VAPs in the market and get higher custom and premium prices? Branding of these products and sustaining the brand value by maintaining quality and an efficient distribution network is the answer.

Tata Steel has quite a few immediately recognisable brands spanning steel for construction, roofing, panels and furniture and agricultural implements; sales under these account for 30 per cent of the company's turnover. Going a step forward, Tata Steel has put its hot rolled sheets and coils under 'Tata Astrum' brand. Ahead of the launch of this brand, the company carried out pan-India mapping to "understand consumption pockets, patterns and customer requirements of HR steel".