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Essar Steel inks deals with Orissa pvt miners

ESSAR Steel, the country’s second largest private steelmaker by capacity, has signed up contracts with private iron ore miners from Orissa, including the Ahluwalia group and the Mesco group, for supplies over a 10-year period. The move is to ensure raw material security even as the company seeks to buy mines overseas and apply for allotment of captive mines from within the country.

“We’ll source ore from 8 to 10 different exporters as we ramp up capacity at Hazira (the steelmaking plant),” Essar CEO Malay Mukherjee said.

“These companies are like consolidators... they buy from different miners. We are looking at using iron-ore fines that are lying in dumps in and around the mines and for which now there is practically little use,” he added.

Essar Steel has been scouting for raw material resources as its expanding the capacity at Hazira to 10 million tonnes from the current 4.6 million tonnes, by March 2012. Its US arm, Essar Steel Minnesota, has ore linkages of over 1.4 billion tonnes and is planning to build a 2.5 million tonne, integrated steel plant in northeast Minnesota for $1.65 billion.

“We are investing in a beneficiation plant at Damona in Orissa as part of our Rs.18,000-crore capex plan,” said Mukherjee. “The ore will be processed at our upcoming 12 mt pellet plant at Paradeep and shipped to Hazira,” he added.

A beneficiation plant typically improves the quality of iron ore. The ore that would be sourced from the private miners has a ferrous content of 55-61%, which would be taken up to 65 per cent.

He said that sourcing ore from Orissa and beneficiating it, will be cheaper by about $50 per tonne, compared to the current practice of buying it from state-owned National Mineral Development Corp, or NMDC.

Since Essar is targeting iron ore fines that are already lying in dumps next to existing mines, it doesn’t foresee any disruption in supplies. “As part of the arrangement, we have an clause for a 3 per cent escalation in price every year,” Mukherjee added. This would hopefully assure the company of input cost stability in the wake of volatility in global ore prices.

Mukherjee joined the $15-billion Essar Group in October 2009, after spending a long stint at ArcelorMittal, the world’s largest steel company, where he was part of the Group Management Board and in charge of Asia, , CIS & Mining.

With its plans for a pellet plant capacity of 12 mt, Essar Steel which currently has a 8 mt facility at Vizag, will have a total capacity of 20 mt. By August 2012, Essar’s 7 mt pellet unit at in the is scheduled to go onstream. This would take Essar’s pellet capacity to 27 mt, making it the second largest in the world, to ’s Vale which leads with a 40 mt capacity.

In another development, Essar Steel plans to beef up its global presence by building distribution networks in Africa, Latin America and .

The company, which is expanding its steel capacity to 8 million tonnes by the end of this fiscal from 4.5 million tonnes, will open service centres in Africa and for local customers.

“We want to tap these markets, supplying steel either from our plant at Hazira in or the Algoma plant in ,” Mukherjee said.

The company is building a centre in the UAE to tap West Asia and another in for the Southeast Asian market. It already has a service centre in the .

The Hazira plant is close to a port built by the Essar group, which has the capacity to handle 30 million tonnes of cargo.

“We are building a state-of-the-art plate mill here. We can export plates to these service centres in ,” he said.

The Latin American market, on the other hand, could be served from the Algoma plant in .

Hypermart launch

Mukherjee was in on the occasion of the company opening its 100th hypermart in .

Essar Hypermart, the retail initiative of Essar Steel, has sold 1.1 million tonnes of steel.

It aims 45 per cent growth in sales to 1.6 million tonnes in the current fiscal.

The company has opened 100 hypermarts and 419 expressmarts in the country, Essar Hypermart CEO Girish Rao said.

The plan is to expand to 126 hypermarts and 650 expressmarts by March 2011. Of this, 100 retail outlets would be in eastern .

The market share of sales through these outlets is expected to increase to 25 per cent from 10 per cent in the east. The company has opened a hypermart in .

According to Rao, Essar wants to enhance transparency in pricing for customers by offering a uniform price for its products across states through these retail outlets.

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