[Ferro-Alloys.com] With two parents that produce 10 percent of the world’s steel and have access to the latest technology, ArcelorMittal Nippon Steel India is going through a transformation across its product portfolio, key functions, and even a new office that is in the works in Mumbai.
One of the biggest changes for the company, which was earlier known as Essar Steel, will be diversifying into making long steel that is used in construction and infrastructure industries. Ever since it was set up in 1998, the steelmaker has specialised in making flat steel that is used by auto and white goods companies.
“We have an eye on long products in India,” Dilip Oommen, CEO, ArcelorMittal Nippon Steel India (AM/NS), told Moneycontrol. The company is in talks with two state governments to buy land, to set up a new facility. Oommen declined to share more details, saying the plans are on the drawing board.
The present facility in Hazira, Gujarat, is one of the biggest standalone units in the world making flat steel. It has an annual capacity to make 10 million tons of steel.
A diversification into long steel is understandable as the 2017 National Steel Policy points out that nearly 60 percent of the metal's consumption will come from construction and infrastructure sectors by 2030, up from 40 percent. AM/NS will square up against the industry leaders, Tata Steel and JSW Steel, who dominate the segment at present.
Both ArcelorMittal - the world's largest steelmaker - and Nippon Steel, Japan's biggest, are major producers of long steel. The two steelmakers had come together to bid for Essar Steel, which was admitted to the National Company Law Tribunal (NCLT). The joint venture was declared the new owner in December 2019.
At the time, the company had announced that it plans to increase AM/NS's capacity to 12 million tons to 15 million tons per year in the long run.
“Apart from the huge volumes that they produce, between the two of them, ArcelorMittal and Nippon Steel also make some of the most high-end steel products in the industry...it's the best thing that could have happened," says Oommen, of the change in ownership.
The expansion sits well with the vision of LN Mittal, Chairman and CEO of ArcelorMittal, who had for long wanted to set up mega facilities in his home country. But his much-hoped project in Odisha got stuck and was shelved. Through AM/NS, he now has the opportunity to expand in a market where demand for steel - despite the current problems from COVID-19 - is expected to grow among the fastest in the world. In most of the other regions in the world, ArcelorMittal is re-looking at its capacity and has even pruned in some.
Product portfolio to expand
Explaining on the scope to expand the company's present product basket, including both long and flat products, Oommen said many of the specialised steel that is currently imported, can be produced locally.
"India imports line pipes. Also, a lot of high value steel used in the auto sector is also imported, so is electrical steel. All this can be substituted and produced in India," said Oommen, who has been with the company since 2003.
"Our offerings will go up, and several products will be launched. The COVID-19 pandemic has delayed things by a bit. But it will again gain speed," said the steel veteran who has been in the industry for 37 years.
On the impact of the virus, Oommen said that the company may not match last year's output, which was 7.23 million tons. This year, it could be lower by about 4 lakh tons. The company, which had cut down on its production to the bare minimum post the nationwide lockdown in end-March, had brought it back to full capacity by the mid of May.
"Our EBITDA, or earnings before interest, tax, depreciation and ammortisation, will be much better in the third quarter," Oommen said.
AM/NS, like ArcelorMittal, follows a calendar year. In the second quarter, its EBITDA fell by 23.5 percent to $107 million in the quarter ending June 30 from $140 million in the previous quarter. Steel production was down 29 percent to 1.2 million tonnes, as compared to 1.7 million tonnes in the first quarter.
"Certain segments have shown good improvement. These include the passenger vehicles and tractors. Commercial vehicles is an area of concern," Oommen said on the demand outlook.
Interest in Uttam Galva Steels
During its bid for Essar Steel, ArcelorMittal had paid over Rs 6,500 crore to clear the debt of Uttam Galva Steels, in which it had bought a stake in 2009. The world's largest steelmaker had made the payment to qualify to bid for Essar Steel, as under insolvency laws, promoters of defaulting companies were barred from placing bids.
Uttam Galva was again in news recently when its lead lender State Bank of India took the company to the NCLT.
While Oommen didn't specifically comment, he said AM/NS is interested in "any project that will add value," and that "it will follow due process under NCLT."
New corporate building
AM/NS, after the ownership change, moved into a new corporate office in Mumbai. By all accounts it will be a temporary one.
Oommen said the company plans to have a new building that will house its India headquarters. The new office will be made of steel, much like what ArceloMittal is building in Luxembourg. The new world headquarters will use 6,000 tons of steel.
The India office may take some more time as further details are being finalised.