Essar Steel's major plans

By Our Staff Correspondent

MUMBAI, APRIL 30. Essar Steel has firmed up major plans to focus on improving shareholder value for the year 2000-01. Having gone past the worst ever steel cycle in the last two years, Essar Steel, the country's largest exporter of HR coils, has chalked up a strategy to beef up its operations.

One of the areas being focused is further improvement in cost structure. Essar Steel has appointed Ernst & Young to assist the company in identifying major opportunities in reducing costs of operations. The mandate for Ernst & Young also includes benchmarking the practices with the best operating steel mills in the world as a means of bridging the performance gaps.

Commenting on the development, Mr. Prashant Ruia, director, Essar Steel said, ``This is a major initiative undertaken by Essar Steel with a clear focus on reducing our costs. We have one of the lowest cost structure in the steel industry as confirmed by Beddows & Hatch, the world renowned steel consultants. However, we believe that there is still latent scope for continuous improvement. In order to harness this, we have appointed Ernst & Young to assist us.''

Among the steps taken in this direction are increasing production capacity and improving capacity utilisation, Mr. J. Mehra, managing director, Essar Steel said, ``We have recently increased our production capacity by 10 per cent reaching a level of 2.2 million tonnes from the earlier 2 million tonnes, without any major capital expenditure. This has been achieved mainly by process re-engineering in certain areas namely the sponge iron plant and the steel melt shop. As a matter of fact, Essar Steel has operated its plant at 2.2 million tonnes capacity and plans to further increase the capacity to 2.4 million tonnes by the end of 2001. The increased capacity would certainly reduce our overall costs (including variable and fixed costs) and impact our bottom line costs both in terms of interest and deprecation.''

The company is now focussing its attention on its in-house technological innovation capability to improve volumes and reduce costs by improvement in technology and process. In addition, the company is also focussing its efforts to improve its sales realisations by marketing its products in niche markets which offer premium over the market and also to develop premium quality products.

Commenting on the overall steel outlook, Mr. Mehra said, ``Asian economies have started recovering and there have been an increase in consumption. From now on, we can expect a more stable market.''

According to him, there has been a concerted global upturn in steel consumption. The two reasons for this upturn are the improvement in global economic growth rates and turn around in the steel inventory cycle. It is expected that the global consumption from the fourth quarter of 1999 to the third quarter of this year will increase by about eight per cent compared to last year. Mr Mehra added, ``The new millennium may experience sizeable rally in world steel prices. The HR coil prices are expected to rise by about 15-20 per cent during 2000 with the gap between the US and European prices partly closed as the Euro strengthens against the dollar.''

During 1999-2000, the domestic industry exported nearly two million tonnes of flat products, an increase of 133 per cent over the exports in 1998-99, which is evident of the fact that there is a definite thrust on exports.

Commenting on Essar Steel's export contribution, he said, ``Essar Steel has so far earned Rs. 700 crores foreign exchange for the country. The company's exports showed a handsome growth of 47 per cent during 1999-2000 vis-a-vis the previous year. Exports meanwhile rose to 0.67 million tonnes in 1999-2000 from 0.45 million tonnes in 1998-99. The company now plans to export nearly 1.2 million tonnes during 2000-01. The consumption of flat products in India has increased by 10 per cent during 1999-2000 vis-a-vis the previous financial year led by a rise in the production of vehicles, white goods, waterline pipes etc.

With regard to the issue of domestic demand, he said, `` the government is the largest consumer and the largest players, which will continue to have an impact on the domestic steel demand. There has been an overall stagnation of domestic consumption due to reduction in government planned expenditure.''

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