Mumbai: JSW Steel Ltd on Wednesday announced an equal joint venture (JV) with Japan’s Marubeni-Itochu Steel Inc. to set up a steel processing facility in north India, continuing its focus on forward integration.
The joint venture, JSW MI Steel Service Center Pvt. Ltd, will set up a 1,80,000 tonnes per annum processing facility to cater to clients in automotive, white goods, construction and other value-added segments.
“Today when you want to move into high-end, value-added products, the end customers, particularly in the auto segment, look for material that can be used directly, which requires processing in large quantities through service centres,” said joint managing director and group chief financial officer Seshagiri Rao.
“Marubeni-Itochu has over 100 processing centres across the world and specializes in value-added steel,” he added, underlining the rationale for the JV.
JSW Steel currently has only one service centre at Vijayanagar in Karnataka and has been steadily moving into the higher-margin auto grade steel for some years now.
In November 2009, it entered into a strategic collaboration with Japan’s second largest steel maker, JFE Steel Corp. The bedrock of this agreement was to collaborate in auto steel. In July 2010, JFE picked up a 14.99% stake in JSW Steel, further cementing this relationship.
The group has a recent history of tying up with other companies for joint production. It has a joint venture with state-run Mysore Minerals Ltd for iron ore mining. Besides, it has set up a venture with the UK’s Severfield-Rowen Plc. to promote the use of steel in construction in 2008.
The group also set up a joint venture with Praxair Inc. of the US that makes at least 5,000 tonnes of oxygen a day called Jindal Praxair Oxygen Co. Ltd.
Rao reiterated that there is no conflict of interest that would come in the way of the two relationships as the agreement with JFE was for basic steel making and value-added products while that with Marubeni-Itochu was for the processing of steel that was already made.
The processing facility is expected to come up near the auto hub of Gurgaon, near Delhi, in the April-June quarter of 2013.
The move will open up a new market for the company as Gurgaon is a base for the country’s largest two-wheeler and four-wheeler makers, including Hero MotoCorp Ltd and Maruti Suzuki India Ltd. Honda Motorcycles and Scooter India Pvt. Ltd and Suzuki Motorcycle India Pvt. Ltd are also present in Gurgaon.
Honda Siel Cars India Ltd is present in nearby Greater Noida, where white goods maker LG Electronics also has a presence.
“We’re now finding a problem in servicing customers in north India as we don’t have a presence there. We supply in bulk quantities whereas these customers generally look to have smaller quantities just in time,” Rao said.
The joint venture will give it access to both the technical expertise and the experience that Marubeni-Itochu has in high-end and specialty steels.
The move is in line with the broader trend of steel makers tuning themselves to specific demand, said an analyst who tracks the company for a foreign brokerage. He didn’t want to be named as he isn’t permitted to speak to the media.
“India is moving towards a service centre concept,” he said. “There is a lot of auto expansion which is happening in India, and we’re also becoming an export hub.”