Tata Steel plans to secure supply of 60% of its raw materials

Tata Steel plans to secure supply of 60% of its raw materials

Mumbai: India’s largest steel maker by capacity, Tata Steel Ltd, aims to ensure secured supply of 60% of its raw materials by 2015, up from 25% now, the company said in its annual report.

It will do so by investing substantially in strengthening its holdings in overseas mines. It is also evaluating several mineral projects in Brazil and Australia.

The move to secure supply of raw materials will help the company lower risks from price volatility. Typically, raw materials such as iron ore and coal, among others, account for 40% of a steel manufacturer’s revenue from sales.

“While it will make marginal difference in the price of these raw materials when demand is sluggish, as demand picks and raw material prices harden, the savings for the company would be significant," said Sanjay Jain, an analyst at a Mumbai-based brokerage Motilal Oswal Securities Ltd.

Tata Steel focused not only on tapping into new raw material opportunities in the fiscal year ended 31 March but also fortified its presence in existing ventures.

In July, Tata Steel Global Minerals Holdings Pte Ltd, a wholly-owned subsidiary, bought additional shares in Australia-based Riversdale Mining Ltd (RML) through market purchases, increasing its holding to 19.38%.

RML has acquired coal exploration tenements in the Tete-Moatize area of Mozambique, whose combined size is now in excess of 250,000ha.

In Tete province, the Benga coal project is being developed as a 65:35 joint venture between RML and Tata Steel Global Minerals Holdings. Tata Steel had secured rights over 40% of the output to feed its Corus factories in the UK and Europe.

The project will become operational in 2011.

Tata Steel has similar strategic pacts for iron ore, coal and limestone with different firms in Australia, Canada and Oman.

With Corus in its fold, it makes sense for Tata Steel to focus on increasing its raw material security, Jain said. Tata Steel acquired Corus Group Plc, Europe’s second largest steel producer, for $12.9 billion (Rs61,662 crore) in 2007.

JSW Steel Ltd, India’s second largest steel maker by local consumption, also made an attempt at mining coal in Mozambique but shelved plans saying the coal content was found to be of poor quality. The company is now looking at Chile and will take a decision on prospective investments in that country after October, Sajjan Jindal, vice-chairman and managing director said on 27 July.