Hit hard by compressing margins in a flat market, domestic steel makers are shifting their focus from semi-steel products to high-margin, value-added products. Almost all integrated steel players have lined up big investments to ramp up capacity for value-added steel and put up new lines for products currently not being manufactured here.
Steel Authority of India (SAIL) is investing R7,390 crore on capacity addition plans to manufacture higher quality steel products in the next couple of years. Similarly, private sector steel major Essar Steel, which produces 70-75% of its total production in the value-added category, is planning bigger share in this segment. Other steel makers such as Jindal Steel and Power, JSW Steel and Tata Steel have forged global alliances to enhance production of new grades of steel.
?We plan to increase share of value added products over our total steel production to 55% at the end of the expansion plan by March 2013. The main reason to increase this product portfolio is the higher margins. With little more investment on technology, the product value goes up tremendously and fetches better margins,? SAIL chairman CS Verma told FE.
Value-added steel constitutes 39% of SAIL?s total production of saleable steel and amounts to over 50% of its profit. Profitability from this segment is expected to grow over 65% after 2013. It has also tied up with Bhel to manufacture CRGO-grade steel which is used in transformers. Bhel currently imports this grade of steel. Value-added products refer to the higher quality of steel including ferritc stainless steel, or even bullet proof steel, designed and produced for specialised sectors.
Earlier, most of these products were exported but with the growing demand in railway, defence, nuclear, aerospace and automobile, steel makers have realised the potential of the segment. Essar Steel also plans to invest in higher and more specialised products depending on the requirements of particular sectors. ?Semi-steel products are available at cheaper prices in markets like China. The next big business is value-added products. The good thing is that the demand for higher grade of steel products is growing even in the domestic markets,? said Vikram Amin, executive director (sales and marketing), Essar Steel. With a current capacity of 8.6 million tonne per year, Essar Steel has a target of expanding to 14 million tonne by the end of this fiscal. Around 80% of its revenue comes from the higher grade of steel.
Jindal Steel and Power (JSPL) has also set a target of increasing manufacturing of value-added products by 4-5% every year. At present, only 25% of its total production is value added, amounting to 40% of its revenue. ?The market is going to grow significantly in India. The higher-grade products have better saleability. Therefore, we are looking at value addition in a big way,? said JSPL?s steel business MD & CEO VR Sharma.
Apart from higher margins, steel makers are also looking at value-added steel to brace for competition after global steel majors like Posco and ArcelorMittal start production in India. The Indian companies? interest for technology step up has also given opportunity to companies such as Nippon Steel, Posco, JFE Steel to enter into technology partnerships with the Indian entities.