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Shining strategy to beat input crisis

Calcutta, May 22: Tata Steel may resort to barter deals to tide over the shortage of certain key inputs. The company is planning to ask state-run Steel Authority of India Ltd (SAIL) to supply billets in exchange for coal. Billets are an essential semi-finished steel (semis) product required to produce flat products.

The move is a win-win situation for both companies, sources said. While Tata Steel wants to tide over its crisis of semis through barter deals, SAIL is keen to get some extra coal.

Tata Steel, the largest private sector steel company in the country, has drastically reduced the quantum of semis over the last one decade. In its product mix last year, semis have only a 5 per cent share.

The company’s focus is now on value-added flat products, which attract a better price. Tata Steel’s Jamshedpur plant is currently producing at a much higher level than its nameplate capacity. The domestic demand has gone up phenomenally in the last one year. As a result, the company is in dire need for billets, sponge and pig iron to jack up its production capacity.

Sources said Tata Steel and SAIL are likely to forge at least a medium-term contract so that both companies benefit in view of the current demand pattern in the domestic market.

“In fact, both the companies have decided to forge such a tieup. And in a small way, the barter has started between the two,” they added.

SAIL has the largest quantity of billets, about 1.42 million tonnes, which the company sells in the market.

While Bhilai Steel Plant sells about 5.5 lakh tonnes of billets, Durgapur Steel Plant sells about 8.61 lakh tonnes. Semis contributes over 50 per cent of the total sales volume in DSP’s product mix.

Since a lot of mini steel plants have come up in various places in the country, billets have suddenly become very scarce. The shortage of billets has also put a significant pressure on its price, much to SAIL’s pleasure. SAIL is also benefiting since the import of pencil ingots and scraps have come down over the last two years.

But while SAIL has a ready market for its billets now, it is facing a tremendous shortage of coal, especially after Anglo Coal of Australia failed to keep its supply commitment since the beginning of the calendar year.

The company has been forced not only to buy coal from spot markets at a very high price, it is also trying to go through the coal dust injection as well as using coal tar.

Hence, the barter with Tata Steel for raw materials has become one of the most lucrative offers before SAIL, sources said. Meanwhile, Tata Steel has decided to increase production at mines and collieries and trade the surplus from those mines for billets.

Tata Steel has two coal mines and one iron ore mine with very high reserves. The company produced about 3 million tonnes of coal and 9 million tonnes of iron ore in the last financial year.

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