Why the world’s largest steel trader is opting for the manufacturing route through strategic partnerships and greenfield ventures in India
Matthew Stock is an Indophile, much at home with the chaos and heat of India. He came to India, first as a student backpacker, only to return again and again, and finally since 1997 as a resident. But catching up with him is difficult as Stock is a maniacal traveller, jet-setting between Istanbul, London, New Delhi, his plant sites in Orissa and, of course, his India hub, Mumbai.
Things are just as busy for UK’s Stemcor, the world’s largest steel trader, in India: A strategic alliance with Ispat that’s still being negotiated, a new 4-million-tonne-a-year pellet plant in Orissa, other strategic ventures and the bread-and-butter metals trading business. “It’s really hectic,” says Stock, Stemcor’s director for the Middle East & South Asia.
The company has been in India long enough to have cashed in on many great investment opportunities. From Essar Steel’s pellet operation to Electrosteel, Sathavahana Ispat or Mideast Integrated Steel of Mesco Steel and now Ispat, Stemcor has made a habit of making good on its investments in Indian assets.
“Our equity investments may be perceived as high risk, but if the plant and machinery is good, if the project is viable, then a little bit of tweaking that we would ask for will give us huge rewards,” says Stock candidly about his strategy.
But, that also means taking decisions that have to date been alien to Stemcor’s global vision. From being a commodity trader, the privately-held company has now moved on to build coke and pellet plants. All this has also ensured Stemcor’s India operations currently contributing close to 10 per cent of worldwide revenues, compared with a paltry 1 per cent a decade ago.
“After the pellet plant, a steel manufacturing facility is definitely what we are thinking of,” Stock says. The company has invested Rs 1,500 crore in Orissa to buy an iron-ore mine and set up its first manufacturing unit (the pellet plant) in its 60-year history, which is about to be commissioned.
So, how did a steel trader decide to build a pellet plant for itself? “Well, an opportunity to buy this iron-ore mine in India came our way and we decided to enter the Indian market. Iron-ore fines were left unused here and we saw that as an opportunity to make pellets out of them and sell. That is how it all began,” Stock explains.
But, building the plant for yourself and for others are two separate issues. Stemcor has signed up to build a coke oven and pellet plant for Pramod and Vinod Mittal-promoted Ispat Industries. “Ispat has a very modern plant with all the new-age gadgets installed. It is just an incomplete plant and we are trying to complete it with the coke oven, pellet and power plant,” Stock says.
But Stemcor, realising the potential of pellet demand in western states, is now open to buying out Ispat’s 3-million tonne facility. “We wanted a presence on the two coasts of India. Our plant in Orissa will serve the east coast and this plant at Ispat’s existing facility will serve the western region of India,”Stock says.
Stemcor’s decision to take a 74 per cent stake in the Rs 1,100-crore coke oven battery has also ensured cash flows for the Rs 6,500-crore debt-ridden Ispat. What’s still being thrashed out is the actual amount of equity investment and many believe that it could cross the 10-per cent mark.
But this is not the first time that Stemcor has stepped in to rescue its business partners from financial turmoil. Essar Steel and Mesco Steel are two other examples. Stemcor even has close to 20 per cent stake in recently-listed Electrosteel Steels. The company has a tie-up with Stemcor for the marketing and sale of products. Uddhav Kejriwal, director, Electrosteel Castings, says, “(Stemcor) is a strategic investor in the company. So far, it has been going fine and we are looking forward to continuing the arrangement.”
However, with its plans of getting into steelmaking, Stemcor isn’t throwing its core expertise of steel trading out of the window. One of the steel companies that Stemcor deals with in India is the country’s third-largest steelmaker, JSW Steel. Jayant Acharya, director (sales & marketing), JSW Steel, has been happy with the company’s relations with Stemcor. He says, “We have had good dealings with Stemcor for a few years and we are very happy with our relationship.”
It’s been a constant evolution for Stemcor. For energy and resource hungry India, it is beefing up its hunt for mines. Stock has been promoted to the global board, where his learning forms a key part of this new strategy. Next on the agenda: thermal coal assets for the power sector.
