| Ironing out troubles
Mumbai, Aug. 27: Steel companies want to strike the iron when it is hot — they are rushing to ramp up capacity in a clear sign that the tide has turned from the mid-nineties, when their expansion plans got smudged in red ink.
What is driving the current rush is the projection that steel demand will double eight years from now. This could mean an investment burst of Rs 75,000-85,000 crore.
The big question is whether the new capacity binge will end up like the nineties, when companies lurched to losses as interest costs and steel prices moved in different directions. “This time, it would be a lot different. The firms are much smarter now,” says an analyst.
Steel Authority of India (SAIL) and Tata Steel have unveiled greenfield projects; Jindal Iron & Steel, Essar Steel, Ispat have done so as well. South Korean steel lynchpin Posco, Australia’s BHP Billiton and Anil Agarwal’s Vedanta are weighing big plans for Orissa.
In the last decade, the setting up of new projects coincided with a depression in the steel industry, forcing many to return to their bankers for debt breathers.
“It is a different scenario now. Interest rates are lower than the 17-19 per cent prevailing during those years. Also, companies have learnt from past mistakes and are setting up projects in two or three phases. This way, it gives them the flexibility to stop after the first round if demand or prices go horribly wrong,” the analyst said.
A growth rate of 6 to 8 per cent signals a fast build-up in infrastructure. SAIL alone intends to shovel Rs 25,000 crore in its mega expansion project, which will take its capacity to 20 million tonnes by 2011-12. The company’s two-phase schedule envisages ramp-ups at its Bhilai, Durgapur, Bokaro and Rourkela units.
Tata Steel, which has already announced brownfield projects in Jamshedpur and kept options open on acquisitions, will set up a Rs 18,000-crore plant in Orissa.
Vedanta Resources Plc, Sterlite’s holding company known to specialise in non-ferrous products copper and aluminium, has drawn up plans to enter steel. The vehicle will be a Rs 20,000-crore project in Orissa.
Among global giants, the South Korean steel maker Posco and Australian mining major BHP Billiton have jointly approached the Orissa government to set up a 10-million-tonne steel project, either at Duburi in Jajpur district or Dhamra in Bhadrak district, for Rs 8000 crore.
One of the factors underpinning these initiatives is the fact that India’s finished carbon steel production at 36.19 million tonnes in 2003-04 was not enough to meet demand, which had to be satiated with imports of 1.51 million tonnes in 2002-03 and 1.65 million tonnes in 2003-04.
Global steel consumption in 2003 was 863.7 million metric tonnes. China used 232.4 million tonnes against India’s 31 million; the figure for Asia was 445.9 million tonnes.
World crude steel production for the 62 countries reporting to the International Iron & Steel Institute (IISI) was 589.7 million tones for the first seven months of 2004. This is 8.2 per cent higher than for the same period of 2003.