Faced with rising input costs and increasing competition, Steel Authority of India Ltd has embarked on a Rs 400 crore (Rs 4 billion) cost-reduction exercise in the current fiscal in areas of raw material usage, energy and refractory consumption.
Apart from the cost cutting exercise, the steel major has also laid stress on producing value added products to maintain its bottomline.
"Cost of inputs like coking coal are rising at an alarming rate, technology is rapidly changing and competition is increasing by leaps and bound. The scenario calls for action. We are taking a hard look at the profit margins," SAIL sources said.
The price of imported coking coal has more than doubled during last April to August this year while the cost of ferro-alloys, another expensive raw material has increased by more than 30 per cent during the period.
The sources said the company's strategy was to maximise revenue through the sale of value-added products and reducing per unit cost of production by way of operational efficiency.
The company aimed at achieving a cost reduction of Rs 400 crore (Rs 4 billion) during 2005-06, the sources said. The areas for cost reduction were identified after a study and analysis of the overall business scenario.
The exercise involved continuous identification of the technical problems in operations and a detailed assessment of the financial impact of the shortcomings.
To reduce consumption of coking coal, the company has decided to maximise the use of alternative fuel injection like coal dust injection and coal tar injection techniques in all blast furnaces of its integrated steel plants.
Apart from this, it has also decided to install facilities like oxygen injection, maximising the use of nut coke as part-substitution of blast furnace coke etc, the sources said.
At the same time, SAIL's Ranchi-based research and development centre for iron and steel has been assigned to work out an optimum ratio of iron ore lump and sinter which would further reduce the cost of hot metal.
The company's raw materials division has planned to improve the quality of iron ore from its captive mines.
The sources said another area, which was being looked into was improving logistics for controlling demurrage and idle freight which also posed a challenge to SAIL, a multi-location and multi-product organisation.
A detailed action plan has been prepared with a view to reduce wagon detention, the sources said.