Feeder steel units come up around industrial hubs

To serve the growing industrial hubs in the country that need processed steel, service centres are being set up close to them.

These hubs chiefly comprise the automobile, automobile ancillary and consumer durables industries that are emerging in clusters in and around a few Indian cities.

At present, around 10 per cent of steel in India is sold through service centres, unlike Europe and the US, where it is 40-50 per cent.

However, with the emergence of automobile manufacturing hubs like Manesar in Gurgaon, Pune and Chennai, these service centres are gaining more market share. Total demand for steel from the automobile sector in India is 2-2.5 million tonnes per annum (mtpa) or 10-12 per cent.

The total demand for high-end and auto-grade steel coming out of Manesar and Faridabad is around 0.4 mtpa. Pune is also drawing demands of 0.3-0.4 mtpa and it is expected to grow at around 10 per cent.

Pantnagar in Uttarakhand has also become home to many such industries like Mahindra & Mahindra, Sharda Motors, Tata Motors, Bajaj Auto and Voltas as they qualify for the ten-year tax holiday extended by the Centre in 2003.

Tata Ryerson, a joint venture between Tata Steel and North America's leading steel distributor and processor firm Ryerson Inc, has been catering to the needs of these industries with an array of flat and long steel solutions.

Another Rs 40-crore facility by the same company in Pune handles customers like Hyundai Motors, Godrej GE, ITW Signode, Wheels India and Hindustan Motors. The company's revenues have risen from Rs 1.83 crore in 1998 to more than Rs 1,000 crore, which aptly sums up the tremendous success this industry has seen.

The state-run SAIL has also joined the bandwagon. It had entered into a 40:60 joint venture with BMW Industries Ltd near the Bokaro steel plant in 2002. It plans to set up more service centres to make itself more market savvy, company sources say.

Posco has two such facilities in India "" in Pune and Chennai "" while its new facility at Manesar will be launched in the next six months. It is already catering to firms like Hyundai and Honda.

Bhushan Steel has an in-house 0.5 million tonne steel service centre at Sahibabad in Uttar Pradesh. The company's CFO Nitin Johari says: "Around 40 per cent of our sales are routed through the service centre. With the exception of Maruti Udyog Ltd, which has separate facilities for treatment of steel, most of our customers purchase from our service centres."

The service centre of the company is equipped to produce steel products in smaller tonnages and varied sizes as it serves Honda Motors, LG, Whirlpool and Godrej.

When asked about growth figures, he said, "We are poised to grow at 25-30 per cent in the next year, with steel from service centres contributing around half of the revenue."

Small and medium enterprises (SME) are also trying to catch up with the trend. Bangalore and Chennai are witnessing a host of standalone service centres that customise steel and operate at lesser margins.

However, Johari was sceptical about these standalones. "These small set-ups suffer from financial and technological constraints. Because of freight and other expenses, they sell steel costlier by 3-5 per cent than we do. It is the shortage that they are banking upon. As such, I do not see any major opportunities for them in the near future given that the production in the country is stepped up. Moreover, they are under constant pressure of being sandwiched between big players,"he added.

Other companies like Mahindra Intertrade, a subsidiary of the Mahindra group and galvanised steel manufacturer Uttam Galva, have already forayed into the business. Mahindra Intertrade is serving global auto majors like Volkswagen, General Motors and its sister company Mahindra & Mahindra.