Essar Steel has over the years become a preferred supplier of value-added steel and related products to several automotive and defence companies across the globe. In an exclusive interaction with The Dollar Business, Dilip Oommen, MD & CEO, Essar Steel India Ltd., talks about the factors that have contributed to the success of the company apart from sharing his vision for the future.
TDB: India’s steel exports have jumped substantially in recent months. Are steel makers focusing more on exports due to muted domestic consumption?
Dilip Oommen (DO): The global steel market has been struggling with subdued demand over the last couple of years. At the same time, many countries, including India, were swamped with steel supplies from China, Japan and South Korea at predatory prices. Since then, most of the impacted countries have initiated trade measures to curb such imports. This has helped bring stability in the international market.
Overall, India’s steel exports jumped 102% in FY2017 to 8.24 million metric tonne (MMT) from 4.07 MMT in the previous fiscal year, FY2016. However, Essar Steel’s focus continues to remain on the domestic market. Most of our production is based on the requirement from our customers and we have been able to sell what we produce. I expect higher steel demand to continue till the monsoon sets in.
The quality of our steel conforms to international standards and hence our products are accepted globally by highend steel users. We endeavour to meet this global demand without disturbing the domestic market.
TDB: Indian government has been coming up with protective measures such as minimum import price (MIP) and anti-dumping duties on steel products. How beneficial have they been?
DO: Indian steel industry has benefitted immensely from the timely action of the government, initially with safeguard duties, followed by minimum import prices and then anti-dumping measures. These measures have helped in arresting the dumping of steel and has brought price stability in domestic market. Last year, imports were down by about 40% y-o-y. Now, if the government can provide for reimbursement of certain state levies and royalties, including electricity duty so that exports are truly zero tax-rated and are in line with WTO norms, it will go a long way in helping exporters.
TDB: Now that China has promised to cut back on overcapacity and excess steel production, how big an impact could it have on global steel industry?
DO: China’s crude steel output in January-February 2017, according to World Steel Association data, increased 5.8% over FY2016. Despite China’s promise to curb steel output to address issues of overcapacity, a lot will depend on how much of the steel produced by China can be consumed by China. We hope that China will not flood international markets in 2017. However, if that is not the case, it is likely the Chinese steel production will add to the global oversupply situation and they will continue to dump.
TDB: Essar Steel India Ltd.’s revenue (consolidated) was down to Rs.15,560 crore in FY2016 from Rs.17,575 crore in FY2015. What led to the fall and how has FY2017 shaped up for Essar?
DO: One of the primary reasons for the fall in revenue was a drop in steel prices. During CY2015, steel prices dropped by over 25% y-o-y. This was primarily due to the dumping of steel by China, Japan, South Korea and certain CIS countries. In fact, imports surged by over 70% during that period. The subdued domestic demand also added to the challenges faced by the Indian steel industry. However, going ahead, we see a huge scope for growth given India’s comparatively low per capita steel consumption and the expected rise in demand due to increased infrastructure activity apart from the thriving automobile and railway sectors.
For FY2017, Essar Steel India Ltd. recorded a 47% y-o-y growth in flat steel production. Our production of value- added steel also jumped by over 20% in FY2017 to 2.8 MMT as against 2.3 MMT during FY2016.
TDB: Middle East and Europe have been important export markets for Essar Steel India Ltd. Are you planning a foray into any new market?
DO: As part of our strategy, we constantly diversify our export base and do not focus on just one market. We identify different markets for different products to spread our risk. We currently export to over 25 countries across the globe. Europe and Middle East are our natural markets as we are a port-based plant, located on the west coast of India.
TDB: How has Essar Steel’s proximity to Hazira port helped it?
DO: Essar Steel is the anchor customer for Essar Bulk Terminal at Hazira. It was our conscious decision to locate the steel plant on the waterfront. Since the steel industry is volume-intensive, it makes immense sense to move cargo through the sea route, which is more cost-effective and environment-friendly. Our location on the west coast gives us easy access to consumer markets of the Middle East, Europe and other western countries.
TDB: Essar eHypermart, an online marketplace for steel and related products, was launched in 2015. How has it benefitted the company?
DO: Being an e-commerce platform, eHypermart can be accessed by any customer from anywhere across the globe. We provide a unique proposition to our customers who use this platform – buy, create and sell. That means, our customers can buy steel from us, create a product and also sell their products using this platform. This is a win-win situation for both Essar and its customers.
Having said that, the major challenge while operating an e-commerce marketplace for steel products is the lack of awareness amongst customers. Changing the mindset of customers and convincing them to buy using an online platform has been a challenge.
TDB: Essar Steel today offers special grade steel products for a wide range of applications in land and naval defence systems. Could you tell us more about Essar’s strategy with respect to value-added products?
DO: Our strategy has always been to focus on value-added products. Today, over 60% of our revenue is generated from value-added products. We have identified defence as one of the sectors where we can play a meaningful role. Backed by a competent product development team, we have created the necessary facilities to meet the requirements of the defence sector. Our journey began five years ago when we started developing and supplying steel for warships.
We are now capable of supplying steel for varied applications in the defence sector like battle tanks, armoured vehicles, rocket launchers, submarines, artillery guns and much more. We are proud that we are replacing imports of these high value-added steel to support the government’s ‘Make in India’ initiative.
TDB: What measures can help boost domestic consumption of steel?
DO: Boosting steel consumption is a surefire way to increase the contribution of the steel sector to the Indian economy. We need to increase steel consumption in the rural market. Steel in housing construction needs to be encouraged.
Growth in infrastructure sector will also boost steel demand going forward. When an economy grows, the demand for steel rises. In fact, realising that the steel industry can contribute to the national economic growth, the government has initiated several measures to boost steel consumption.
The proposed policy initiative of made-in-India steel getting preference in infrastructure projects is a step in that direction. Steel has a multiplier effect on employment generation and it contributes to enhanced economic activity.