Frontline steel companies in India have decided to form a syndicate to acquire assets abroad and fight the competition posed by their Chinese counterparts. This, the industry feels, will increase supply of raw materials and give a boost to the manufacturing sector.
The syndication is likely to be formed under the state-run Steel Authority of India (SAIL), which says coking coal reserves are limited in India. Hence, the need to acquire such assets from outside is imperative. The grouping is now at the stage of draft proposal.
SAIL Chairman C S Verma told Business Standard: “Key raw materials can sourced by way of long-term contract or through equity participation in coking coal mines. This consortium, which is still in the idea stage, would be formed to purchase coal.” He added that the proposal needs to be developed in consultation with other steel producers.
“Bargaining power of Indian steel companies will improve if they can join hands and pool in their resources,” said Verma.
He highlighted the fact that consumption of steel would increase to 150 million tonnes per annum by 2020 from 60 million tonnes, hence, the demand for raw materials would soar by then.
“Chinese mills are state-controlled, so it makes sense for them to form a grouping to acquire raw materials. Moreover, it is important that we create a human resource pool that would work towards obtaining and securitising raw materials. Besides, funding is a vital factor in such kind of ventures,” said Malay Mukherjee, CEO of Essar Steel Business Group.
According to the industry leaders, steel companies in India are facing severe problems in obtaining coking coal, one of the key raw materials for the industry. While 25-30 per cent of it is being met through indigenous sources, 70 per cent is imported.
The price of coking coal is also going through the roof. In the first quarter, the price reached $225 a tonne, while it is around $209 now.
“Ensuring raw material security for the metals industry is a welcome step. We can examine it once we know the details,” said a Tata Steel official, who wanted to be anonymous.
According to Seshagiri Rao, joint managing director of JSW Steel, while such syndication is the need of the hour if the Indian steel companies want to be competitive, the initiative needs proper empowerment, with appropriate authority.
