The world’s sixth largest steel maker, Tata Steel Ltd, is looking to acquire finished steel product companies and mines which can supply it iron ore or coal, said the company’s managing director B. Muthuraman. The firm acquired Europe’s second largest steel maker Corus Group Plc. in January at a deal that put the enterprise value of the company at $13.65 billion (Rs55,965 crore) and has committed itself to holding a 65% stake in a $3.5 billion steel plant and iron ore mine in Vietnam.
Tata Steel wants to achieve global leadership in the steel wires business by boosting its five-lakh-tonne manufacturing capacity spread over India, China and Thailand. It is currently the world’s sixth largest steel wires maker. “We are looking for acquisitions in the steel wires business in Indonesia and Southeast Asia. Apart from expansion in capacity, we also want to move into high grade, higher-value add wires used in tyre cords and oil tempered wires through acquisitions,” said Muthuraman. The firm, which has been focusing on branded sales of steel products, which rose 17% in 2006-07 to Rs4,479 crore, sells its galvanized wire products under the Tata Wiron brand.
In the core steel business as well, Muthuraman aims to raise Tata Steel’s production capacity from 30 million tonnes a year to more than 50mt by 2015 in an attempt to climb up the pecking order of global steel companies and become the world No. 2, behind Mittal-Arcelor. “We want to expand our geographic reach to cover as many profitable markets as possible,” he said.
The acquisitions are being bankrolled by rising prices of steel thanks to strong global demand. Corus has already announced it will raise prices for flat-rolled steel products by 5-12 % in the UK. This follows a series of price hikes by the company since February this year. “The business environment for the company is looking bullish and we expect the company (Tata Steel on a consolidated basis) to do well,” said Rakesh Arora, analyst at Macquarie Securities (India) Pvt. Ltd.
Tata Steel is also looking to buy mines supplying crucial raw materials, iron ore and coal, in an attempt to support its expansion plans. “Post acquisition of Corus, our raw material security fell from 80% to 17%, which we aim to bring up to 40% over the next three to five years,” said Muthuraman.
Rising demand from China has pushed iron-ore prices to a record high with Sinosteel Corp., China’s second-biggest iron ore trader, forecasting prices to rise again next year.
“Mines can change the fortunes of the integrated company, but these will come at a price as their (Tata Steel’s and Corus’) combined requirements are almost 30% of India’s iron ore exports,” said a research analyst at a Mumbai brokerage who requested he not be identified in keeping with his company’s policy.
Leveraging its captive iron ore mines in Jharkhand and Orissa and coal mines in West Bokaro, Tata Steel had emerged as one of the world’s lowest cost producers of steel. It claims that Corus, too, is one of the lowest cost producers of steel in Europe. “Irrespective of the level of prevailing prices (of ore and coal), strategic raw materials must be owned,” said Muthuraman.
Funding the proposed acquisitions could prove challenging for the company.Interest costs on loans taken to finance the purchase of Corus rose over five-fold to Rs186.99 crore during the quarter ended March. As a result Tata Steel’s stand-alone net profit at Rs1,103.5 crore for the quarter was higher than its consolidated net profit of Rs959.51 crore.