Steel yourself to witness an exciting race. Propelled by strong domestic demand, both private and public sector steel players in India are furiously expanding capacity – and one could soon see a neck and neck battle for pole position. Will a private sector player surge ahead of industry leader SAIL for the first time is the question?
With production keeping pace with the burgeoning demand, the steel sector is quite a hive of activity. For starters, almost all the steel players – big and small – have put in measures to increase capacities to cater to the growing demand.
Interestingly, it is the newcomers in the steel sector led by JSW Steel and Essar Steel which are seen to be reducing the gap with traditional market leaders such SAIL and Tata Steel in terms of installed capacity.
On their part, the traditional players are also enhancing capacities through brownfield and green field expansion, which should help them maintain their edge for the next couple of years.
However, in the overall scheme of things, the contribution of public sector firms to the country's steel output has seen a decline in the past five years. (See Table)
As against a little over a third in the middle of the past decade, the share of the public sector has slipped to about a fourth. This can be attributed to the expansion of the overall pie, with the commissioning of new capacities by several smaller players in recent years.
Global players in race
The rush to set up steel units is led by large global players such as ArcelorMittal and Posco among others. Various State Governments have signed 222 MoUs entailing a planned capacity of 276 million tonnes.
Till the pre-liberalisation era, the sector was largely dominated SAIL and Tata Steel. With the opening up in the early nineties, the sector saw new entrants both in private and public sector such as JSW Steel and Essar.
The newcomers have been quick to ramp up their capacities both locally and globally over the past one and half decade. This has been largely through both merger and acquisitions (M&A) and greenfield expansion.
JSW has largely looked at domestic expansion, while its peers such as Tata Steel and Essar have focussed on overseas acquisitions. The Tatas acquired Corus in a $12-billion deal in January 2007, which placed the Indian steel maker in the Top Ten global league. Similarly, Essar acquired Canadian firm Algoma Steel, which has a capacity of 4 mtpa.
Unlike its other peers that use the traditional blast furnace route, JSW has leveraged the Corex technology that makes use of low-to-medium grade iron ore thereby keeping its costs down. Last year, JSW Steel acquired 45.53 per cent stake in Ispat Industries, which has a capacity of 3.3 mtpa that may be scaled up to 5 mpta.
JSW versus SAIL
Recent reports suggest that JSW Steel could possibly overtake SAIL as largest producer once its 3.2 mtpa fourth blast furnace at Vijayanagar plant is fired up during this month. However, that would only enhance JSW's capacity, including that of ISPAT to 14.3 million tonnes during the middle of the year.
However, SAIL which expects its current modernisation to increase capacity to 24 mtpa by 2012-13 would continue to remain the country's top producer. In fact, SAIL has already exceeded its capacity of 12.8 million tonnes to produce 13.7 million tonnes last year. SAIL is targeting a production of 15.3 million tonnes this year.
So, even though JSW might be seen as having an edge in capacity terms, SAIL will continue to lead the pack on the production front.
Commissioning of new furnace at Burnpur by the year-end could further expand its capacity. Besides, SAIL is in talks with Posco set up a specialised steel unit that would leverage Finex technology which makes use of iron ore fines.
On the other hand, the Tatas, seventh largest producer according to World Steel Rankings, are in the process of expanding their existing plant at Jamshedpur by 3 mtpa. This should increase their total capacity in India to 9.9 mtpa by the last quarter of the current financial year.
As part of greenfield expansion, Tata Steel is setting up a 6 mtpa at Kalinganagar in Orissa, while it is also proposes to set up a 5 mtpa unit in Chhattisgarh and 12 mtpa unit in Jharkhand.
The Chhattisgarh and Jharkhand units are likely to be taken up after commissioning the 3 mtpa-Phase I of Kalinganagar in the last quarter FY- 2014.
With steel having strong linkages with other sectors of the economy, this burst of action in the sector may eventually have ripple effects elsewhere too. Ultimately, whoever manages to be at the pole position in the sector, it's the market that is going to be the winner.