Vedanta-owned ESL Steel limited has announced expansion of its production capacity in India from 1.5 mn mt to 3mn mt, that includes an investment of Rs30bn ($407mn). This expansion is expected to be complete by Q4 FY2021.
Company officials are optimistic about a recovery in Q4 2020 and said it is a good time to initiate expansion activities with approvals already in the last stages. In the next phase of expansion, the company eyes increase its capacity to 6mn mt by 2025.
Delay due to pandemic
After the acquisition of bankrupt Electrosteel Steels, rechristened ESL Steel Limited by the Vedanta group in 2018, around 1.2mn mt capacity was commissioned. This was later ramped up to 1.5mn mt while the company has total capacity of 2.2mn mt of long products.
The expansion project was delayed due to the pandemic in early 2020. In spite of a year-long delay, a faster-than-expected recovery in Q3 FY2021 and rise in finished steel prices encouraged the steelmaker to ramp-up expansion process. Also, demand for long products from construction sector is also expected to increase.
Shortage of raw materials
The gap between primary steel mills with captive raw material and those without it has widened with iron ore prices in the eastern belt of the country rising by 120pc over a 4-5 month period. Indian steel industry faced an acute shortage of iron ore after the auction of mines in Odisha. Out of 19 mines including the auctioned Kolmong mine which primarily produces manganese that were auctioned in February and March, only five are functional, as bids at huge premiums have rendered them unviable.
The company is looking for alternative ways to ensure a regular supply of raw materials to the ESL plant in Bokaro in India. Despite having a captive mine in Karnataka for iron ore, its transportation to the ESL plant is not feasible.
Margins under doubt
Pankaj Malhan, chief executive officer, ESL Steel Limited highlighted concerns about margin protection. The company is focusing on efficiency as even with the current price level, there is pressure for protection of margin. The company is expected to operate at full capacity and expects positive financial results in the coming days.