Monday, Dec 01, 2003
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THE MOOD at Essar Steel's plant at Hazira near Surat has changed from despondency to hope, if not elation. In the first half of the current financial year, the company, which was financially battered in 2001 and 2002 due to depressed steel prices, has reduced its loss (after interest and depreciation) to just Rs. 16.29 crores against Rs. 564 crores in the corresponding period last year. Production was up 13 per cent at 9.11 lakh tonnes and sales increased by 15 per cent to touch 8.9 lakh tonnes, as compared to the first half of 2002-03.
Firm prices help
Essar Steel has achieved a 56 per cent growth in turnover in the 12 months ended September 2003 at Rs. 3,444 crores compared to Rs. 2,207 crores in the corresponding period of the previous year. The production target for 2003-04 is 2.1 million tonnes of HRC against 1.75 million tonnes made in 2002-03. With international steel prices remaining firm, domestic consumption growing at 5 to 7 per cent per annum and the unabated Chinese appetite for steel, this increased production should translate into Essar Steel coming into the black this year.
One handicap that is coming in the way of Essar Steel taking full advantage of the current bullish steel market is a shortage of natural gas. This has come about due to the contracted supplier, GAIL, having had to divert gas supplies to New Delhi for fuelling the new gas-based public transport system of the metropolis. Essar Steel is making up the shortage by using naphtha, which costs twice as much as gas. This is adversely impacting the bottom line.
However, Managing Director Prashant Ruia feels that the problem will be overcome next year. In January 2004, Petronet is likely to commission its LNG terminal at Dahej with 5 million tonnes per year (mty) capacity and by August , Shell's LNG terminal at Hazira of 5 mt capacity will also be ready.
What has led to the turnaround at Essar Steel? Obviously, one major factor has been the higher steel prices, prevailing since 2002. Another is the dexterous financial engineering done by the promoters, Shashi and Ravi Ruia, to reduce the company's debt burden. A significant feat was restructuring of Floating Rate Notes (FRNs) worth $250 million and buying back FRNs worth $175 million from foreign creditors at a massive discount of 76 per cent. Long term debts have been renegotiated with the FIs, which hold 60 per cent of the debt, and the average cost of debt is now 11 per cent against 14 per cent earlier. The company hopes to bring down this to below 10 per cent in the next one year.
As a result of all these efforts, the company's finance costs have fallen by 48 per cent from Rs. 636 crores for the 12-month period ending September 2002 to Rs. 332.15 crores in the corresponding period of the current year. The long term debt which was Rs. 5,248 crores in March 2003 is now Rs. 4,100 crores . Further efforts are under way so that the residual long-term debt will be Rs. 3,100 crores by the end of March 2004. The net worth of the company turned positive in 2002-03 and was Rs. 787 crores by end of September this year.
But major credit should go to the people at the plant who have in the past three years engaged in some smart bit of engineering to convert what was initially a 1.7 million tonne hot rolled coil (HRC) plant to a 2.4 mt plant at a minimal capital cost. The effort started with first modifying the design of the modules in the gas-based HBI (Hot Briquetted Iron) section. This increased the productivity of the modules from the originally designed 76 tonnes of HBI/hr to 110 t/hr and enhanced the capacity of the HBI plant from the original 1.5 mtpa to 2.4 mtpa now.
Yet another noteworthy capability developed in-house is an insulated transfer car, which can take 90 tonnes of hot HBI (at a temperature of 650 deg. C) from the reactor and take it for charging into the electric arc melting furnace (EAF). At present about 45 per cent of the HBI charged into the EAF is hot. This is expected to eventually be raised to 75 per cent. Charging hot HBI saves a lot of power during the melting phase in the arc furnace as compared to using cold charge. Power is a critical cost factor in the steel making process used here. In the steel melting shop, consisting of three Direct Current EAFs of 150 tonne capacity, the productivity has been substantially increased by enhancing the rating of the power transformer rectifier system from 130 kA (kilo amperes) to 150 kA and introducing charging of hot HBI through the roof. An in-house designed system to lance oxygen into the metal bath at supersonic speeds in order to achieve higher penetration and better agitation has been introduced to reduce refining time. Further removal of bottlenecks and process refinements should raise the capacity of the melt shop to 3 mtpa and reduce power consumption (a critical cost factor) to 500 kWh/tonne.
High value items
It is not just the expansion of capacity that is creditable. Essar Steel has secondary refining facilities (vacuum degassing, vacuum carbon deoxidation and vacuum oxygen decarburising), which enable it to produce steel with very low inclusion rating (sulphur below 30 ppm) and gas content (hydrogen below 2 ppm, nitrogen below 30 ppm and oxygen below 25 ppm). Because of this Essar Steel has added to its product portfolio, several high value steels, many of which were being imported.
Among them, says Chief Metallurgist, A. M. Kulkarni, are American Petroleum Institute Grades X-60 and X-70 (with X-80 under development), high silicon (up to 1.7 per cent silicon) steel for electrical applications, steel for Hyundai India's car wheels and for the front fork of two-wheelers, steel meant for Caterpillar's earthmovers and normalised boiler plate quality steel. A prestigious product, now under development, is steel that will go into frigates for the Indian navy.
Essar Steel has also scored a first on the information technology front with being the first steel company in the country to implement a comprehensive Enterprise Resource Management package (SAP - R3, Version 4.6) and seamlessly integrate the business and manufacturing processes. The whole implementation cost around Rs. 40 crores and has more than paid back for itself.
With steel prices and demand expected to remain stable for the next three to four years, the company is now conducting a planning exercise to enhance the Hazira plant's capacity to 3 mtpa of HRC, says Subir Sen, Chief of the Hazira Works. Among the steps being considered are raising the capacity of the pelletisation plant at Vizag to 7 mtpa, erecting a fourth module in the HBI section at Hazira to raise HBI capacity to 3.6 mtpa, process improvements and introduction of Level 3 automation in the EAFs, adding another oxygen plant, adding a third caster in the continuous casting shop and stretching the capacity of the rolling mill to 3 mtpa by making technological improvements and raising automation to Level 3. Consultations are on with Danieli of Italy (for melt shop), Mannesmann Demag of Germany (for the casting shop) and SMS Engineering of the U.S. (for the rolling mill) for this purpose. This technological upgradation and capacity increase should significantly reduce the cost of production of HRC and strengthen the company's bottom line.
N. N. Sachitanand
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