Why ArcelorMittal is after Essar Steel?
Lenders to Essar Steel India Ltd., the biggest mill being sold under the nation’s insolvency process, is in talks with
Arcelor has offered to make an upfront payment of about 395 billion rupees ($5.4 billion) to the banks. The Luxembourg-based suitor later plans to pay the lenders about 25 billion rupees from Essar Steel’s retained earnings. It has also proposed a capital injection of 80 billion rupees into the mill, taking the bill for Arcelor to about 500 billion rupees.
What is on the table for ArcelorMittal?
Hazira Unit: Large Capacity, Locational Advantage
Essar Steel runs a gas-based 10 MTPA fully integrated facility at Hazira, Gujarat. It also has processing and distribution centres in Hazira, Pune, Chennai, Indore, Bhuj, Delhi-National Capital Region, Kolkata, besides three overseas locations.
Since it’s a fully-integrated plant—raw material to finished products— that helps the company save costs. Moreover, access to a dedicated port ensures easy movement of raw material and finished goods. That also reduces the cost of expansion for any potential acquirer.
The company produces flat steel products, including slabs, hot-rolled and cold-rolled coils, plates, galvanised products and pipes, among others, that are used from automobiles, construction to warships. These higher-margin value-added products constitute the entire portfolio of Essar Steel. Flat steel products form 74 percent of JSW Steel’s and 72 percent of Tata Steel’s portfolio.
Captive Iron Ore Supply
Essar Steel won a 99.6-million-tonne Ghoraburhani-Sagasahi iron ore block in Odisha—ensuring better profitability when prices of the steelmaking raw material are higher globally and at home. Over the last six months, domestic iron ore prices increased 40-45 percent.
Essar Steel’s Paradip and Vizag pellet plants are linked to iron ore mines through 253-km and 267-km slurry pipelines from Dabuna to Paradip (Odisha) and Kirandul to Vizag (Andhra Pradesh). These lines transport the beneficiated iron ore slurry to the pellet plants and then export it to the steel plant at Hazira.