The Hindu Business Line : Logistics issues of a steel-maker

FOR any steel plant, the logistics and transportation issues are critical to achieve cost-competitiveness, particularly so for Vizag steel plant whose 90 per cent requirement of coal is met by supplies from outside the country.

The transportation of iron ore is heavily dependent on the 446-km long Kottavalasa-Kirandul single-line railway network connecting the plant with Bailadila ore mines. Also, more than 50 per cent of the finished products are transported by road. In an interview to Business Line in Visakhapatnam recently, Mr Panda discusses these and various other issues.

Excerpts from the interview:

How do you handle your raw materials and finished products?

The total volume of raw materials and finished products we handle will be an estimated 16.5 million tonnes (mt), comprising about 12 mt of raw materials, one mt of slag and 3.5 mt of finished products.

The raw materials are handled entirely by rail while the finished products by a combination of rail and road in the proportions of road around 56 per cent and rail 44 per cent.

Don't the customers take delivery of the materials from the plant?

Many customers take delivery of the finished products from the plant for transportation by road at their own cost. Our road transportation cost is mainly on account of the road movement of products to our stockyards.

We have 18 stockyards and two extension counters spread over the country. We also receive raw materials like manganese sands by road.

Isn't the road movement costlier?

We would not have undertaken road movement unless it was cost-effective. For certain distances and for certain kinds of products, road movement makes more sense than rail movement. True, the oil price is rising but the road transportation cost, with so many players being active in the field, is at the same time becoming competitive.

Also, with the construction of new wide roads under National Highway Development Programme, the road transportation of certain products is certainly going to be more and more competitive, cost-wise.

Still, you depend heavily on the Railways for movement of the raw materials and a large chunk of the finished products. Are you satisfied with the performance of the Railways?

The bulk of our transportation cost is accounted for the Railways — nearly Rs 450 crore out of a total of about Rs 600 crore or so annually. It will be a rash to claim that everything is hunky dory in rail transportation. There are problems in wagon availability, limitation of the route capacity and various other operational problems. We face and fight them out. We had problems in getting coal from Talcher.

There were restrictions on coal loading for steel plants vis-à-vis power houses which received top priority. There were occasions when the National Mineral Development Corporation slapped restrictions on wagon loading of ore. But the Railways, despite several constraints at their ends, try to meet our requirements as far as possible, presumably because we also cooperate with them.

For the past three years, there has not been a single case of wagon detention within our plant. We have a very efficient railway system complete with 125 km of network and as many as 31 locomotives.

Didn't you explore the coastal movement of the finished products?

A few years ago we tried to send by the coastal route some materials to Gujarat but failed miserably.

You are working on expansion of the capacity. Will it not strain your present logistics and transportation system?

We are working on the expansion of capacity from the present 3.5 mt to five mt by 2007-08. The expanded capacity, once achieved, will straightaway push up the transportation requirement for an additional 7.5 mt as we will be required to move more raw materials and finished products.

We earnestly hope that the Gangavaram port project becomes a reality by then. Once the port starts functioning, our transportation problem will be largely resolved and there will be a huge savings in cost now incurred for transporting materials from the Visakhapatnam port to the plant. Our long-term plan sets the targeted capacity at 10 mt by 2017/18. Which means the infrastructure, of which the transportation system is a key component, has to be built for handling at least 50 million tonnes, of which raw materials will be about 40 mt.

This presupposes extra effort not only on our part but also on the part of those we are closely associated with.

You're planning to import metallurgical coal from the US? Will not such imports add to your cost?

It will most certainly push up the cost. First, the cost of the material will be much higher than what it costs to buy from Australia. Also, the shipping freight will be much higher. The time to be taken for the material to reach too will be much longer, not less than 40 days.

What will be the landed cost of the material?

Together with shipping freight, it will not be less than $200 per tonne, substantially higher than what we have paid so far for the Australian variety. But then we have no choice if we want to maintain our production.

Did you try any other country?

We also explored opportunities in Canada. But the rail transportation system there, particularly from the mines to the port, has been badly hit by adverse weather condition. So we did not pursue.