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Though JSW Steel seems on track to meeting its target of raising its capacity in India to 40 million tonnes (mt), its plan for greater global presence doesn’t seem to be shaping up on expected lines.
According to a media report, Lucchini, Italy’s second-largest steelmaker whose Piombino complex JSW Steel had sought to acquire for less than $100 million, has now decided to sell it to Algerian conglomerate Cevital. This follows the Sajjan Jindal-led company’s decision not to pursue its plans of acquiring Italy’s Ilva Steel.
The Piombino complex employs about 2,000 people and can produce up to 2.5 mt of steel a year. The loss-making Lucchini, earlier owned by Russia’s Severstal, was declared insolvent in 2012. Following the 2008-2009 financial crisis and stiff competition from Asia, it had recorded slowing demand.
High environmental and pension liabilities had forced JSW Steel to drop its plan to bid for Europe’s Ilva Steel, valued at $600 million, sources said.
“It is true. We have decided to move away from Ilva as well,” said Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel.
“It is the company’s strategy to make basic steel in India and then send it to finishing mills acquired abroad to make enhanced finished products,” Rao told Business Standard. “By acquiring such mills abroad, we are basically building the front end for the product portfolio.”
“I won’t say we are aggressive bidders. We are cautious in whichever geography we might be. We are in no hurry and will keep scanning for opportunities,” he added.
Nilendu Lall Mukherjee, director (corporate clients), Royal Bank of Scotland, said, “In my view, lower capital outlay would have been the principal reason for JSW bidding for these plants.” He added if an asset was available at a low cost, operations could be well managed by an Indian owner.
JSW Steel is yet to see a turnaround in its plates and pipes mill in the US. In 2007, it had acquired 90 per cent stake in the unit for $900 million to tap demand from the oil and gas sector.
Analysts, however, remain optimistic about the mill’s prospects. “Now, the US is in a recovery mode and it does have replacement demand for oil pipes, apart from laying fresh ones. This will surely help the company’s US mill,” said an analyst with a local brokerage firm.
Analysts also say failure on acquisitions in Europe might be a blessing in disguise. “I understand having capex when the economy is down. But capex should be in a growing market, not a shrinking one such as Europe,” said an analyst with a foreign brokerage firm. “While Lucchini was a small-ticket rolling mill and, therefore, wasn’t significant, the fact that Ilva wasn’t acquired, for whatever reason, is good for the company.”
“It is good to know the management has taken a rationalised approach in bidding,” said Giriraj Daga, senior analyst with Nirmal Bang.
In the domestic market, however, JSW Steel has been quite aggressive on the acquisition front.
Early this year, it had acquired Vallabh Tinplate, which gave it an entry into the tinplate business. This was followed by the acquisition of Welspun Maxsteel.
JSW Steel runs a 10-mt plant in Karnataka, a one-mt unit at Tamil Nadu and a 3.3-mt unit in Maharashtra. The tinplate business has given the company a sound footing in the north of the country, too.
According to a media report, Lucchini, Italy’s second-largest steelmaker whose Piombino complex JSW Steel had sought to acquire for less than $100 million, has now decided to sell it to Algerian conglomerate Cevital. This follows the Sajjan Jindal-led company’s decision not to pursue its plans of acquiring Italy’s Ilva Steel.
The Piombino complex employs about 2,000 people and can produce up to 2.5 mt of steel a year. The loss-making Lucchini, earlier owned by Russia’s Severstal, was declared insolvent in 2012. Following the 2008-2009 financial crisis and stiff competition from Asia, it had recorded slowing demand.
High environmental and pension liabilities had forced JSW Steel to drop its plan to bid for Europe’s Ilva Steel, valued at $600 million, sources said.
“It is true. We have decided to move away from Ilva as well,” said Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel.
“It is the company’s strategy to make basic steel in India and then send it to finishing mills acquired abroad to make enhanced finished products,” Rao told Business Standard. “By acquiring such mills abroad, we are basically building the front end for the product portfolio.”
“I won’t say we are aggressive bidders. We are cautious in whichever geography we might be. We are in no hurry and will keep scanning for opportunities,” he added.
Nilendu Lall Mukherjee, director (corporate clients), Royal Bank of Scotland, said, “In my view, lower capital outlay would have been the principal reason for JSW bidding for these plants.” He added if an asset was available at a low cost, operations could be well managed by an Indian owner.
JSW Steel is yet to see a turnaround in its plates and pipes mill in the US. In 2007, it had acquired 90 per cent stake in the unit for $900 million to tap demand from the oil and gas sector.
Analysts, however, remain optimistic about the mill’s prospects. “Now, the US is in a recovery mode and it does have replacement demand for oil pipes, apart from laying fresh ones. This will surely help the company’s US mill,” said an analyst with a local brokerage firm.
Analysts also say failure on acquisitions in Europe might be a blessing in disguise. “I understand having capex when the economy is down. But capex should be in a growing market, not a shrinking one such as Europe,” said an analyst with a foreign brokerage firm. “While Lucchini was a small-ticket rolling mill and, therefore, wasn’t significant, the fact that Ilva wasn’t acquired, for whatever reason, is good for the company.”
“It is good to know the management has taken a rationalised approach in bidding,” said Giriraj Daga, senior analyst with Nirmal Bang.
In the domestic market, however, JSW Steel has been quite aggressive on the acquisition front.
Early this year, it had acquired Vallabh Tinplate, which gave it an entry into the tinplate business. This was followed by the acquisition of Welspun Maxsteel.
JSW Steel runs a 10-mt plant in Karnataka, a one-mt unit at Tamil Nadu and a 3.3-mt unit in Maharashtra. The tinplate business has given the company a sound footing in the north of the country, too.
