Amid the slump in domestic demand for the metal, the steel industry is increasingly focussing on high-margin value-added steel products. Companies such as Essar Steel, Steel Authority of India, Jindal Steel and Power and Tata Steel are relying heavily on high-strength and low-alloy products to improve margins. SAIL chairman CS Verma said, ?Around 37% of our revenues are from value-added steel products at present and in the next one and a half year, we plan to increase this to 55%.?
Jindal Steel and Power (JSPL) spokesperson told FE that the company will lay emphasis on manufacturing of head-hardened rails (on which high-speed trains are run), as well as steel for making windmill tower plates.
Essar Steel has started supplying steel for building Navy warships, which was earlier being imported. Essar Steel spokesperson said, ?Currently 50% of our revenues comes from sale of value-added products. The industry is moving from commodity-grade steel to high-grade steel, which provide higher margins.?
?Most of the steel exports from India consist of value-added steel products with higher margins. To remain competitive globally India needs to grow share of value added and sophisticated steel product in its export basket,? analyst at Corpotrade Global Private said in their steel report 2013.
SAIL has reported gross sales of R12,802 crore during the second quarter of the current fiscal, out of which R4,736 crore is from the sale of value-added products. ?The effort is to switch from long products ? primarily used in construction ? to value-added products which allow better realisations,? Verma added.
SAIL has also joined hands with Japan?s Kobe Steel for strategic collaboration in technologies for producing high-value products for nuclear plants to automobiles. This will include special alloy steel, bars and stainless steel tube. Industry experts say most imports into India from China happen in the flat-steel segment, which falls in the value-added category. Indian steel makers are now trying to capture it.
JSPL claims that they will be in a position to supply such rails at a good discount to prices quoted by Japanese producers. Most of the value-added steel products that Essar Steel makes are used in special projects. For instance, Essar recently supplied API grade steel to a premier oil company in UK.
JSW Steel also has been slowly ramping up its value added steel production. Currently, 70% of its flat and 40% of its long products fall in the finished steel, hence, value-added category. JSW Steel entered with JFE Steel Corporation in 2009 and invested about R5,000 crore to buy a 14% stake in JSW Steel, primarily to fund JSW?s value-added products business.
The steel industry registered a growth of 13.3% and 9.9% during 2010 and 2011 fiscals, but Indian steel consumption grew at only 5.5% during 2012 on the back of a slowdown in demand from its key consuming industries namely construction, capital goods and automobiles.
Capacity utilisation rates remained below 80% ? exhibiting a serious challenge facing the industry. The lack of availability of primary raw materials like iron ore and coking coal ? lagged the ability of the industry to sustain revenue realisation. This created margin pressure and compounded financial problems for the steel industry.