Tata Steel Ltd moved a step ahead in its quest to increase production of value-added steel and signed a joint venture (JV) agreement with Nippon Steel Corp. This formalizes the announcement made about a year ago about the two companies exploring a JV. Tata Steel will own 51% in the JV, with Nippon owning the rest, at a total investment of Rs2,300 crore.
Also See (Graphic )
It will set up operations at Tata Steel’s Jamshedpur facility, converting the steel produced there to high grade automotive steel. Nippon will license its technology for the product and will also bring along the product accreditations it has with global manufacturers, essential for supply to the automobile Original Equipment Manufacturers (OEMs). Nippon gains by getting near access to the raw material, a shorter set-up period since the JV will operate in a functioning facility, and a strong local partner. It will also be entitled to nearly half the profits of the JV, which is expected to start operations in 2013.
Tata Steel has “more from steel” as one of its strategic long-term objectives, as part of which it plans to raise the portion of processing that steel undergoes within the company before being sold. That would bring it better margins but, more importantly, reduce volatility if its products are able to command customer loyalty. Global automobile majors, for example, prefer to buy steel from the same steel companies, irrespective of where they operate.
Tata Steel’s capacity will rise from 6.8 million tonnes (mt) of finished steel to 10 mt in fiscal 2012, and when a new Orissa project comes on stream, it will add another 6 mt of flat steel products. These will add scale to its operations, while projects such as the ones with Nippon will increase the amount of value-added steel it sells. While domestic demand outstrips supply in the current market, as various steel projects come on stream, that gap will narrow. Being able to supply more of premium grades of steel will be an advantage for companies such as Tata Steel.