With JSW Steel deciding to acquire 41.29% stake in debt-laden Ispat Industries, a virtual capacity war has broken out in the domestic steel industry between the state-owned Steel Authority of India Ltd (SAIL) and the JSW-Ispat combine as to who will be the largest producer of steel in the country. While JSW claimed that by March 2011 its combined capacity will be the highest in India at 14.3 million tonne per annum (mtpa), the installed capacity of SAIL and its actual capacity utilisation suggest that the state-owned firm will continue to be a leader in the domestic market all through and JSW may have to be content with its number two position.
Even in terms of adding greenfield projects, which both plan by 2020, SAIL will have an edge since it already owns lands ? at Bokaro, Rourkela and Durgapur ?while JSW is yet to acquire. In terms of meeting the raw material needs, while SAIL sources 100% of iron ore from captive sources, JSW is able to do only up to 30%. Here Ispat will be of no help since it has no raw material linkages.
SAIL?s installed capacity is 13.82 mtpa but since its capacity utilisation is at 104%, its actual production is at around 15 mtpa. This makes it the clear leader since JSW?s capacity is 6.8 mtpa and Ispat?s is 3.3 mtpa. Further, Ispat?s capacity utilisation is only around 85-90%, so its actual production works out to around 2.9 mtpa.
Now let?s look at the capacity addition programme of SAIL. By 2011, it is going to add another 2.8 mtpa, taking its installed capacity to 16.62 mtpa while the actual production will still be higher. By 2012-13, when its modernisation is complete, SAIL?s installed capacity will go up to 23.6 mtpa and actual production is projected to be around 25 mtpa. Therefore, again it will clearly be ahead of JISL.
This is only in the short-term. JSW plans to become a 34-mtpa company by 2020 as it is coming up with two greenfield plants in Bengal and Orissa, respectively. However, by then SAIL?s capacity would be even higher at 43.6 mtpa. This is because SAIL is also coming up with three greenfield plants ? one 15-mtpa at Bokaro, one 3-mtpa in a JV with South Korean steel manufacturer Posco at Rourkela and yet another 2-mtpa in a JV with Japan?s Kobe Steel at Durgapur. However, with Ispat, JSW will get access to a plant which is technologically superior. It will have to refurbish its poor marketing of products though.
