Essar Steel'S Pellet Plant Caught In A Quagmire

The enormous success of Essar Steel, to start with, was the low cost, high quality hot briquetted iron (HBI) they could produce and export. With a production cost of less than $100 a tonne and sale price of $ 150 a tonne with similar mark-up in the local market, the project struck gold. It also opened the doors for the ambitious steel and other projects of the Essar empire.

The wheel has now turned a full circle with the entire steel industry, including Essar, running into problems. "Essar has the merit of a completed project," says Prashant Ruia, director in charge of Essar Steel. "For $ 1.7 billion, I have a two million tonne state-of-the-art steel plant, a two million tonne steel service centre, a 1.8 million tonne HBI plant, a 3.3 million tonne pellet plant, a 40 per cent stake in a 515 MW power plant, and a captive port facility to handle five million tonne of cargo with the infrastructure. That is value for the money anywhere in the world."

 

True, no doubt, but what does one do when the bottom falls out of the steel market in India and the whole world? It is a task for the national government to protect its core industry when there is world war on the steel front.

For Essar, at least, there are avenues through which it can come back to robust health over a period of time. Just as the HBI was the cause of Essar's success, its new pellet plant could be a helping factor. Spread over 110 acres of land at Vizag, the 3.3 million tonne pellet plant, based on Lurgi technology, is now suffering for want of working capital.

"I need at least Rs 70 crore as working capital to run this plant to capacity. The bankers who have seen the plant find it an extremely viable proposition but the general ills of the steel industry is crippling the liquidity of the plant," says K V Rao, CEO.

Rao, a veteran of the Kudremukh iron ore and pellet complex having spent 25 years in that plant, now heads the Essar pellet plant complex . He feels that there is large demand for blast furnace grade (BF) and Direct Reduction (DR) grade pellets in China. Of the 12 steel mills he had visited in China, six of them had shown interest in Essar pellets. About 2,50,000 tonne of pellets had been exported out of which about 1,40,000 tonne had gone to China. "We could export at least a million tonne of pellets now and more later if the working capital problems are overcome," says Rao.

The pellet plant of Essar draws its supplies of iron ore fines from Bailadila complex in Madhya Pradesh. Three rakes of 3500 tonne each are needed every day if the plant is to work to optimum capacity. The rail freight costs about Rs 450 per tonne. The wagons are tippled and the iron fines of minus one to 10 mm size with a ferrous content of 64 to 65 per cent go through a conveyor system of 14 kms to the pellet plant where it is wet ground in ball mills to fine talcum size. The mixture is then sent through a thickener and agitated, and, later on, additives like dolomite and binder bentonite are added. Green pellets of the size of 6 to 18 mm are formed. The most critical part of the process is the Lurgi travelling grate furnace where the green pellets are fired at a temperature of 1350 degrees Celsius .

In each shift, there are only seven people to man the production process but 80 maintenance people. According to Rao, the plant is very economical but the full benefits of the venture can be reaped only when the pellet plant is expanded to seven million tonne with other attendant facilities.

To raise the pellet plant capacity to seven million tonne, all that is needed is a second pelletizing furnace. This may cost between Rs 150 to Rs 200 crore.

Critical to this expansion is the slurry pile line of 270 kms from Bailadila to the Vizag plant over a distance of 270 kms. The pipes required for this venture have already been imported and are lying at Vizag. The permissions and clearances required for laying the pipeline are also in place. Since Bailadila is at a height of 600 feet and pellet plant at the sea level, the pipeline w ill have no problems in the movement. The ground beneficiated fines will be at the plant site at a cost of about Rs 70 per tonne against the present cost of Rs 450 a tonne.

A benefaction plant of seven million tonne will raise the iron content in fines from 64-65 per cent to 68 per cent, and will enable production of DR grade pellets with 68 per cent iron which has a premium in the world market.

A seven million pellet plant will give an export surplus of five million tonne of DR grade pellets. The $200 million question is - who is going to finance the project?