Kunal Bose
More than a decade ago, when JSW Steel acquired Ispat Industries owning a 3.3 million tonne (mt) mill at Dolvi in Maharashtra, its chairman Sajjan Jindal made a candid observation about what stands in the way of capacity consolidation in the industry. He said: “Wherever I go, people often would tell me that Lakshmi Mittal has led consolidation in steel industry outside China. But when will such a thing happen in India? In India a majority of steel companies are family owned. The industry, therefore, remains highly fragmented. Promoters’ egos are high. They may be sinking. They may take the shareholders downhill with them. But they still will not sell their businesses.”
On an earlier occasion, former SAIL chairman SK Roongta credited with the launch of PSU’s massive modernisation and capacity expansion of five integrated mills also thought that whatever be their distress, families would not let go of their steel companies till they are brought to their knees.
See how strongly the Dolvi unit, which collapsed by a mountain of debt, inability to service bank loans, a weak steel market and issues of corporate governance has come back with steelmaking capacity hugely expanded to 10 mt supported by installation of a 4.5 mt blast furnace, a 5 mt steel melt shop and a 5 mt hot strip mill under JSW. Moreover, JSW is moving Dolvi forward in value chain “through continued expansion of value added and downstream capacities.” Dolvi is just one example of where JSW intervened to turn around ailing mills and then explore scope for building new capacity. So the company now has in its bag Bhusan Power & Steel (2.5 mt crude steel), Asian Colour Coated Ispat (1 mt downstream capacity), plate and coil mill of Welspun (1.2 mt) and Vallabh Tinplate (0.1 mt). Then a highly stressed asset, Dolvi ownership change happened outside the Insolvency and Bankruptcy Code (IBC) resolution process through a three way deal between the two Mittal brothers, Sajjan Jindal and not easily yielding banks.
Credit for initiating major sick steel capacity acquisition and its turnaround goes unquestionably to JSW. But Tata Steel, which stayed busy in building a modern greenfield mill at Kalinganagar in Odisha, adding whatever capacity is possible at the mother Jamshedpur plant and reinforcing its value added branded portfolio, has by now picked up as many as three units from the sick bay, one of these through IBC route.
Incidentally, Tata Steel acquisition of the 5.6 mt Bhusan Steel (since renamed Tata Steel BSL) in 2018 was the first acquisition of a stressed steel asset under IBC Code. In the following year, Tata Steel through its subsidiary Tata Sponge acquired the steel business of Usha Martin with a nameplate capacity of 1 mt speciality long product steel but actual production was half that. Subsequently, Tata Sponge was rechristened Tata Steel Long Products (TSLP) reflecting its new bearing. In the meantime, under the oversight of the new owner, TS BSL, benefiting from synergies, cross-fertilisation of ideas, increasing use of captive iron ore, combined logistics planning and “manufacturing of Tata Steel branded products at TS BSL plants at arm’s length” has been able to raise production and introduce new value added products as its EBITDA margins continue to improve.
Tata Steel management expertise and technology prowess have also come to the aid of rapid turnaround of steel business acquired from Usha Martin. Apart from growing crude steel output by 11% to nearly 650,000 tonnes last year, the focus remains on progressively making bigger volumes of high alloy steel. Production is expected to be around 700,000 tonnes this year through debottlenecking. The roadmap for TSLP that chairman TV Narendran has talks of “exploring possibilities to reach nameplate capacity of 1 mt along with investment in matching downstream and finishing facilities.” In fact, the kind of progress seen in quality and working of assets on ownership change will work as a positive for future consolidation of the steel industry. Interestingly, China thinks consolidation in steel capacity will greatly aid its decarbonisation goals. The recent acceleration in mergers is seen as attempts to ensure that by 2025, five top steelmakers account for 40% of Chinese steel output. Having copied Lakshmi Mittal’s capacity unification idea, China Baowu Steel Group has dethroned ArcelorMittal from the world’s largest steelmaker ranking. But in recent years, ArcelorMittal has shed capacity both in the US and Europe.
But what made Tata Steel to bid aggressively for Neelachal Ispat Nigam Limited (NINL)? NINL’s 1mt closed mill located in close proximity to Tata Steel’s Kalinganagar plant has quite a few pluses such as ownership of 2,500 acres of land and iron ore deposits of around 100 mt. Equally importantly, NINL for its enormous capacity growth scope in long products is an excellent strategic fit for Tata Steel, which is targeting capacity of 35 mt to 40 mt by 2030. Tata Steel has a strong presence in flat products, thanks to its mills at Kalinganagar and Dhenkanal (TS BSL) both offering major scope for expansion besides what is there in Jamshedpur. The goal is also to have a significantly large capacity for long steel for which demand will remain strong as India pursues infrastructure development and promotes industrialisation under Aatmanirbhar Bharat campaign. While the NINL 1 mt tonne facility will be restarted expeditiously, Tata Steel’s bigger plan is to first build a “state of the art 4.5 mt long products complex in the next few years and then further expand it to 10 mt by 2030” making optimum use of the available land.
Also consider profound changes happening at Hazira plant after ArcelorMittal in partnership with Nippon Steel acquired the 9.6 mt mill at Hazira. The mill is now to be expanded to 15 mt by 2024 leaving scope for further expansion by optimum utilisation of land.
(A former FT correspondent, the author is now India correspondent for Euro Money publication Metal Market Magazine)
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