Tata Steel is on the prowl

Tata Steel, India's leading integrated steel plant, is looking for acquisitions to expand its production capacity for greater product mix and leveraging its cost advantage in the global market.

Being the lowest-cost steel producer in the world, the Jamshedpur-based Tata major is planning to consolidate its market leadership by possible acquisitions in India and overseas.

Though the strategic plants for acquisitions are yet to be identified, Tata Steel Managing Director B Muthuraman hinted in Bangalore on Wednesday that the company would have to expand its production capacity as well as the product mix to stay ahead of the stiff competition.

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"As part of our long-term strategy, we are already strengthening the existing capacity at Jamshedpur with an additional 1 million ton expansion at a cost of Rs 1,700 crore (Rs 17 billion). It will be commissioned by September 2005," Muthuraman said.

Declining to spell out the details, Muthuraman, however, told rediff.com that the company was looking at steel plants within the country and abroad for outright purchase or strategic investment.

"Our criteria will be the global competitiveness of the plant and location of its assets in terms of access to raw materials and market potential. In future, India and China will be two emerging markets in the world for steel consumption. Indian market will continue to grow at 5-6 per cent.

In the absence of the raw material (iron ore) in Mainland China, it will continue to rely heavily on imports. Being closer to it than any other country, its advantage India to explore the Chinese market, with low-cost high quality production and abundant natural/human resources," Muthuraman stated.

With demand being flat in matured markets, especially in the US, Europe and Japan, the world steel industry is set to witness gradual cut in production capacities and greater consolidation in the coming years.

"The global steel industry will not see the kind of mad rush to set up new plants that was witnessed in the eighties and nineties of the last century. In the absence of higher volumes and greater product mix, growth prospects in the developed countries are quite bleak. Cost constraints will also stagnate production capacities in these markets," Muthuraman said.

"Discussions are, however, on among the global players for transparent trade practices to stabilise prices and consolidate their market presence," he disclosed.

Commenting on the price volatility in the global markets, the managing director said prices for flat products were expected to stabilize at the current levels in the near future.

"Most of the global players operate their business on long-term contracts and committed supplies to their loyal customers. Though no one can accurately predict the prices at a given time, it is the spot prices that determine the volatility in the market," Muthuraman affirmed.

Tata Steel generates about 85 per cent of its revenue from long-term customers and distributors worldwide, with the balance from spot market.

Reflecting on the price cycles in the industry, the Tata steel man said though spot prices for hot rolled coils peaked during 1995-96 to $475 in the international markets, they plunged to an all-time low of $180 in 2000-01, but managed to recover during the last fiscal (2002-03), thanks to spurt in demand from developing countries, including India and China.