India must focus on value added steel: Deloitte

Debabrata Das New Delhi | Updated on October 23, 2014

Urged to work closely with auto sector

Indian steel companies should focus on adding capacity to the value added steel for specific end-users market as crude steel will continue to face oversupply pressures, said Nicholas Sowar, Global Steel Leader, Deloitte LLP.

“In terms of adding capacity, Indian steel makers need to find the selective niche for value added products. I believe India can replicate the Korean and Japanese model where steelmakers worked closely with automobile manufacturers to add capacity and have a ready market,” Sowar told BusinessLine.

Excess capacity

According to Deloitte, in 2013 there was an excess capacity of 517 million tonnes globally for crude steel. The reason for this is the rapid capacity addition in China, according to Deloitte LLP.

Sowar said that if Indian steel makers are able to successfully add capacity for value added products, the country has the potential for being a successful regional player in the global market.

Clearance concerns

“The only concern I have is with respect to energy security and the pace of clearances. The delays to the Posco and ArcelorMittal projects have sent a negative signal to global investors. Therefore, Indian manufacturers will have to take the lead,” he said.

Meanwhile, on the issue of acquisition opportunities in the troubled European market, Sowar said that at the right price there are good assets available.

“Yes, Europe is growing at a slow pace but they won’t stop producing cars and white goods. Therefore, in the flat steel (hot rolled coil) segment, there are good opportunities with plants which have great technology,” he said.

Sajjan Jindal promoted JSW Steel is currently in talks to acquire the core assets of Italy’s second largest steel maker Lucchini.

Initially, the deal looked set to be inked at less than $100 million but the Italian company has subsequently asked JSW to increase its offer as an Algerian conglomerate Cevital offered up to $300 million for the assets. While Sowar said that at less than $100 million, the price was good for the Lucchini acquisition, other analysts have been concerned about JSW’s acquisition plan.

Acquisition concerns

“Europe isn’t the right market and the acquisition does not make sense considering that the plant is not an integrated one and the crude steel will be sourced externally. JSW might be planning to export steel from India to the downstream facility in Italy but with a small plant size, it doesn’t make economic sense,” said an analyst with a foreign brokerage firm on condition of anonymity.

Published on October 23, 2014

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