The Hindu Business Line : SBQ Steels looks to many positives from slowdown

Chennai, Jan. 4 The current economic slowdown “is the best thing that could have happened to us”, says Mr Rajiv Rai, Chairman, SBQ Steels Ltd, which is putting up a Rs 1,100-crore special steels plant at Krishnapatnam, Andhra Pradesh. Mr Rai says that the slowdown has caused the costs of capital goods to go lower than the company’s initial estimates.

More than costs, it is the deliveries that are good news for Mr Rai.

There was a time when the project was yet to leave the drawing boards, when it appeared that the boom would cause a significant expansion of lead time for supply of capital goods, such as overhead cranes.

“What used to be 10 months is now about a couple of months,” Mr Rai told Business Line.

He believes that steel sector would do well in the near future because of the thrust that will be given to infrastructure development the world over, which he sees as inevitable.

SBQ is putting up the project in three phases. In this phase, which is now complete, the company invested Rs 200 crore in putting up a blast furnace and a sinter plant.

SBQ is waiting for the construction of coke oven batteries also to be completed so that it would not have to depend upon imported coke for making pig iron.

The coke ovens were to be put up in the second phase, but the company finds it worthwhile waiting for in-house coke making facilities before commissioning the pig iron plant.

The pig iron plant, capable of producing 350,000 tonnes a year, is expected to go on stream by March.

Second phase

In the Rs 400-crore second phase, the company will produce 150,000 tonnes of sponge iron.

This will be mixed with the pig iron to make 500,000 tonnes a year of steel billets and blooms and can used in making auto components makers as well as in construction.

Sponge iron contains “tramp elements” and is regarded to be an inferior raw material to make steel, but Mr Rai says that mixing sponge iron with pig iron is the least cost method of producing steel. Pig iron contains carbon, which burns while steel making, helping in slagging off of the impurities. This produces the same results as when only pig iron is used to make steel, but is cheaper because you don’t need coke to make sponge iron.

Cost-cutting

In the third phase, SBQ will spend Rs 500 crore in various value-addition and cost cutting measures.

The bulk of the spend will go in creating a 60 MW power plant which will use the waste heat from the steel mills to generate power. A ‘pulverised coal injection’ system is to be installed to reduce the consumption of coke.

A facility to compact coking coal (stamp charging) will be put up for coke production—another cost cutting measure.

Finally, a mini cement plant will also come up to make captive use of the slag from the steel mills.

Financial closure is over for the first two phases and the Rs 200 crore equity is entirely promoter-funded.