SAIL chairman Sushil Roongta is not given to exuberance. He was the one not to court credit for SAIL’s sterling performance during the over 5-year bull run in steel that ended in August 2008.
Now that steel, like other commodities, have hit the trough, Roongta, instead of turning into a complaining self, is trying to negotiate the crisis by cutting costs all round and restructuring the group’s product portfolio in line with market demand. More semis are turned into finished products and now there is more emphasis on making value-added and special steel.
SAIL, the country’s largest steel maker, has five integrated plants and also alloy steel units backed by extensive mining operation and power generation. But it is at Bhilai Steel Plant, which Roongta describes as the “jewel in the SAIL crown”, that the strategy to prepare the group to make the best of the next upturn in steel demand, whenever that happens, is rolled out seamlessly.
Bhilai has earned for itself the “flagship” status in terms of performance indices, exclusive capacity to make rails and heavy plates of world standards and a work culture “worthy of emulation” by other group plants. According to SAIL, Bhilai’s labour productivity of 319 tonnes/man a year during 2008-09 was ahead of the group productivity by as much as 104 tonnes.
As for the coke rate, Bhilai’s 491.2 kg a tonne of hot metal was far better than the group rate. According to Bhilai Steel Managing Director R Ramaraju, “as the world coking coal prices soared past $300 a tonne last season, we managed to bring down the share of imported coal in our blend to 75 per cent from the earlier 80 per cent by making greater use of indigenous coal and auxiliary materials.”
All such moves plus major improvements in techno-economic parameters like using less energy for steel making and injecting greater amount of coal dust in blast furnaces helped Bhilai to effect a saving of Rs 293 crore in 2008-09 against a target of Rs 205 crore, says finance director TK Gupta. At the same, a lot of leeway is still to be made up to bring Bhilai performance indices in alignment with the world’s more efficient mills.
Demand and price falls have led many groups, including ArcelorMittal to cut plant production by as much as 50 per cent, close down very high cost mills and lay off thousands of workers. Nothing of this, however, happened at Bhilai where last year production of both crude and saleable steel scaled new highs.
Market condition in the final two quarters of 2008-09 deteriorated so much that nobody expected Bhilai to maintain PBT of Rs 5,366 crore of the previous year. But if Bhilai managed to restrict profit erosion to the minimum, it is because, as Ramaraju says, the nearly 29 per cent growth in production of special and value-added steel to 2.79 million tonnes.
Steel being a commodity, will always remain vulnerable to price swing of the kind seen 10 months ago. But Bhilai having made it a point to continuously move up the value chain in products like rail and plates, where there is no peer pressure, it is less prone to price fluctuations.
The issue here is to respond to the requirements of more demanding products from the railways, like very long rails and high tensile weather resistant plates. While Bhilai has made the delivery, it also has had success in customising plates used in the making of earthmoving equipment, offshore structures and windmills. This has led to import substitution.
BSP’s merchant and wire rod mills have also recently come up with products like high corrosion and earthquake resistant TMT rebar and wire rods. The products will be in demand for construction to be undertaken in the country’s high risk seismic zones.
No doubt BSP has distinguished itself in many ways. But the fact remains that the 50-year-old plant now calls for comprehensive modernisation as it is to expand crude steel making capacity from 3.92 million tonnes to 7 million tonnes by 2012 with an investment of around Rs12,000 crore.
Roongta says this investment will lead Bhilai to make all its steel through continuous casting route. As a new steel melting shop is built, the ageing SMS-I equipped with the Soviet Union vintage high energy consuming twin hearth furnaces is to be done away with. Or one such furnace will still be kept for making rim steel for which Bhilai has a name?
