Tata’s steel and Birla’s aluminum are vying for supremacy over the global can and luxury auto space, in a fight that is only going to get more heated.
As we speak, two giants are girding up for what is slated to be a major confrontation over lucrative chunks of businesses that neither party can afford to ignore anymore. What’s more, they have already drawn up plans to mount incursions into each other’s territories, hoping to come away with valuable bounties.
As Indians and Chinese guzzle more sodas and Europe increases its consumption of high-end luxury sedans, two behemoths of Indian industry—Tata Steel and Birla Group’s flagship firm Hindalco, along with their global group companies—are poised to duke it out over the valuable can and luxury car market,
Both Tata Steel Europe (formerly Corus) and Aditya Birla Group’s Novelis do not manufacture cans themselves, but supply the essential raw material for them. And for both, packaging is a key vertical. Naturally, both are eager to supply can body sheets to a fledgling Indian market poised for take-off.
As the global aspirations of both these metal majors intensify, the two will also be competing for a bigger chunk of the international automotive metals pie. Here again, at stake will be big contracts from car makers like Jaguar-Land Rover(JLR) to Toyota and Renault. But unlike beverages, autos will be a much bigger play in Europe and the US before reaching Indian shores.
Most industry watchers see this as natural evolution for both these diversified and global Indian conglomerates. Tata and Birla are familiar rivals in different sectors like retail, financial services and telecom. Now, digestion of world-class international outfits such as Corus and Novelis has simply added rocket-fuel to this chase for a chunk of each other’s businesses.
One of those savoury targets is the can industry. Cans in India—both food and non-food—is currently only a Rs 3,000 crore market, but is growing at 5 per cent. Local can manufacturing is already attracting FDI—some of the bigger global can manufacturers like Rexam and Canpack have already set up shop through joint ventures or on their own.
Unlike the West, in India, steel has so far been the preferred metal for making cans. But Aditya Birla’s Novelis—which recently overtook rival Alcoa as the largest North American player in the segment—wants to change that in a hurry. Globally, aluminum is the preferred metal for cans, argues Novelis, with more than 85 per cent of the 280 billion beverage cans made every year using the lighter metal. Fifty-four per cent of the aluminum processed by Novelis goes into cans. From its global manufacturing centres in Asia, Europe and Americas, the company alone supplies 38 per cent of the total global can sheet requirement. Naturally, cans provide the single biggest chunk of revenue for the company with close to 60 per cent of its sales coming in from just one product category.
Come October, Novelis’ aluminum sheets for cans will now be made available locally. The company is setting up the Rogerstone Can plant at its Hirakud smelter facility. The 500 kilo tonne per year plant will come up in two phases—the first in October—with an investment of $130 million for the first phase and a capacity of 135 kilo tones per annum. Already two companies, Rexam and Can-Pack, have approached them and many more are expected to make a beeline for India. “We will also be supplying to the international brands by taking advantage of the brand equity of Novelis,” Debu Bhattacharya, Hindalco’s Managing Director and Vice Chairman of Novelis, had said recently.
The Tatas are not one to take this development lightly. As part of its integration strategy which will see transfer of technology from Tata Steel’s European operations to emerging markets like India, packaging has been shortlisted as a new area for growth. For Tata Steel Europe, supplying steel for can-makers like Crown, Ball Group, Ardagh, is already a big business and they want to replicate the model in India in both food and non-food items including paints, oil cans and bottle crowns through its subsidiary Tinplate Company of India. The company recently spent Rs 425 crore to double its capacity in Jamshedpur to 400,000 tonnes per year. In a recent interaction, Tata Steel Europe’s MD and CEO, Karl-Ulrich Kohler had told Business Standard, “We at Tata Steel in Europe run a huge packaging industry. We have been talking about what synergies there might be between the European packaging steel operations and those in India and want to accelerate progress on that.”
Industry officials say that grabbing market share from aluminum players like Novelis is not going to be easy. According to sector analysts, the initial can lines were all meant for steel but over the years, the industry has moved away towards aluminium. “Even though you may use steel for the can body, for the caps, lid and crown you have to rely on aluminium,” said a senior industry official.
In the Auto industry, however, the roles are reversed and it is Tata Steel that has the upper hand with Birla’s Novelis playing the role of contender. For now at least. An expensive metal, aluminum has niche usage with steel currently enjoying an overwhelming 80 per cent share of automotive body parts. Just for Tata Steel Europe alone, 20 per cent of its production goes to the auto sector. It already works closely with automakers in areas like car bodies, chassis, interiors and power-trains, etc.
Novelis, however, has taken the battle to Tata. In an ironic twist, Birla’s Novelis has been a key aluminum vendor for Jaguar-LandRover’s vehicles in the last few years, something that undoubtedly is a nagging thorn in Tata’s side. Tata Steel is trying to change that by engaging with the marquee car brand to develop high tensile steel for all its future models. “We have to work closely with JLR. It should be home turf for us,” said Kohler.
It helps that Kohler himself is from Thyssenkrupp, a global auto steel specialist. Naturally, he would like to grow his company’s share in the auto steel market. Tata Motors have already begun synergising the group eco-system and have planned an R&D programme for a common engine for its Indian operations and its British arm. Even though JLR is looking at light weighting its models further, and so far aluminum has had the edge in doing that, steelmakers argue that for long term sustainability, steel is a better bet. “Tata Steel Europe is in talks with JLR for developing advanced technology steel for all their forthcoming models. JLR has an ambitious plan for its future models and Tata Steel Europe is actively looking to partner with them,” added an official in the know.
Auto steel is clearly becoming a bigger global play for the Tatas, much beyond JLR. “Last year we started up a new relationship with Mercedes and we are now building on that. And we certainly will not slow down in our endeavours to grow with Peugeot, Renault, VW or General Motors,” says Kohler.
It takes almost two years to get an approval from an automaker to be part of new product R&D. Sources say the company has already signed an agreement with Renault and Nissan to work together on their new product pipeline development. Auto grade steel for these OEMs will be supplied from Port Talbot. A similar agreement with Peugeot is also in the works. Tata Steel’s Ijmuiden plant in Netherlands is also gearing up to supply to the German car majors like Mercedes and BMW.
India is already a big hub for auto steel and Tatas dominate with a 45 per cent share. But here too, the focus is to upgrade from being just a vendor to the auto OEMs to actually teaming up with them for new product development. Work has already begun on Toyota’s Etios and Innova.
For Novelis, only 7 per cent of its aluminium produced goes into cars. But with strict rules governing carbon emissions, in the next five years, demand for aluminum from the world auto sector is expected to grow by 10 per cent, while demand for beverage cans will grow at less than half that pace. Light weighting of cars along with hybrid fuel options are the new frontiers for global auto giants. Aluminum players argue that its metal is lighter and more malleable than steel, and therefore a better bet for lighter and fuel efficient cars.
Destined to gauge the mettle of any seasoned campaigner, these wars are bound to test these two industry giants in ways that they haven’t before.
CAN TATA STEEL UPSTAGE NOVELIS? * Aluminum is the preferred metal for making cans with 85% of the 280 billion cans using it. * Here, Birla’s Novelis is the clear defender, currently producing 38%-40% of the total global can sheet requirement while using 54% of its supply * Tata Steel is one of the top 3 steel makers of cans in Europe along with Thyssenkrupp and ArcelorMittal Packaging . * They supply can-makers like Crown, Ball Group, Ardagh, * In India, both food and non-food can industry is currently a small Rs 3,000 crore market, but is growing at 5 per cent per year * So far, steel is the preferred metal for cans in India but Novelis is determined to change that * Tata wants to replicate its Europe model in India selling steel for paint cans, oil cans and bottle crowns WILL NOVELIS DRIVE CHANGE IN AUTOS?  * Steel enjoys 80% market share in auto parts. Aluminum is a niche player.* 20% of the Tata Steel Europe’s production goes to the auto sector vs only 7% of Novelis's total production goes to auto sector * However it’s lighter aluminum is fancied by higher-end vehicles * Ironically, Novelis has been a key vendor for Jaguar-LandRover’s vehicles in the last few years in addition to other brands such as BMW and Porsche * Tata Steel is trying to change that by engaging with the JLR to develop high tensile steel for all its future models * Tata Steel India has 45% market share in auto steel market, Current customers include: BMW, Fiat, VW * However, demand for aluminum from the world auto sector is expected to grow by 10%, while demand for beverage cans will grow at less than half that pace. * Light weighting of cars along with hybrid fuel options are the new frontiers for the global auto giants and aluminum being a lighter, more malleable metal will shine |
