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Electrosteel Steels Betting on Chinese-Made Plant

The industry is watching if Electrosteel Steels’ Chinese-made plant delivers on its promise

Published: Mar 12, 2013 07:11:23 AM IST
Updated: Mar 12, 2013 03:27:35 PM IST
Electrosteel Steels Betting on Chinese-Made Plant
Image: Beawiharta / Reuters
Electrosteel Steels' steel plant is probably India’s first to be built by Chinese workers

With most companies in the domestic steel sector struggling amid rising debts, slowing demand and scarce raw materials, saving Rs 4,250 crore in the setting up of a new steel plant is significant. Equally important is completing the construction of the plant and commissioning it within five years, especially when big names in the sector have nothing to show for projects they signed in 2005.

Interestingly, there is a ‘foreign hand’ in this twin achievements of Kolkata-based Electrosteel Castings Group, whose unit Electrosteel Steels is operating a new plant in Bokaro, the industrial district of Jharkhand. The company roped in Chinese steel major Laiwu Steel Group to construct the plant and maintain it till production is ramped up to capacity (this could take up to two years). Ninety-five percent of the equipment was imported from China. The steel plant is not just the first in India to be built entirely with Chinese collaboration, but also probably the first to be constructed by a Chinese workforce—almost 2,000 Chinese workers built it. The plant has a capacity of 2.5 million tonnes a year. “We will add another million tonnes of capacity,” says AV Shah, chief sales and marketing officer, Electrosteel Steels.

“Traditionally, Indian steel companies have relied on German suppliers for equipment and technology to set up plants. Had we followed the same route, the equipment alone would have cost us at least 30 percent more,” Shah says. The Chinese are also known for “fast execution of projects”. “If not for almost a year that we lost because of the work being held up, we would have completed the project much earlier,” he says. Work had been stalled due to “visa problems” faced by the Chinese workers.

Not far from the Electrosteel plant is the site of the proposed mega project of ArcelorMittal, the world’s largest steelmaker. Though the company signed an agreement in 2005 with the local government to set up the plant, the project is facing delays in acquiring land. Shah says that although Electrosteel acquired about 2,000 acres for its project, the plant needs less than 700 acres, which is less than what a plant usually needs.

“Indian steelmakers have been sourcing equipment from China for sometime now,” says AS Firoz, chief economist, Joint Plant Committee, a research body set up under the ministry of steel. But the purchase—made to reduce the overall debt burden—has been limited to a blast furnace or a sinter, and not a complete plant. “Although we appreciate the lower capex per tonne, benefits will be known once the plant is fully operational,” wrote Bhavesh Chauhan and Vinay Rachh of Angel Broking in a note in late 2012. Right now, only one of the three blast furnaces is fully operational.

This could well be the litmus test for Electrosteel and its Chinese partner. As experience from the power sector has shown—rising use of Chinese equipment was marred by complaints of faults—all eyes will be focussed on this Bokaro plant until all its units function at full capacity.

(This story appears in the 22 March, 2013 issue of Forbes India. To visit our Archives, click here.)

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  • Rk Singh

    This will be a test drive for Indian Steel Industry. Till the plant achieved its rated capacity any comment on it shall be premature.

    on Mar 18, 2013
  • K Bhaskar

    Till the rated capacity is achieved, it`ll be very early to comment on the viability of plant and the chinese technology.

    on Mar 15, 2013
  • Yograj Grover

    Electrosteel group's a old group, they decided to go with Chinese works and the installation and the machinery, fair enough, Am sure corporate must hv gone thru all pros nd cons, truly a litmus test, For indian corporate as well as Chinese corporate too. Surely should be thru well, will open flood gates for other projects too. Brave effort and all the best.

    on Mar 15, 2013
  • Manoj Kumar

    This is a good story. Another Smart way to reduce the Capex cost is to acquire a running plant from Europe or USA. With the economic slowdown there, it could be had at a very reasonable price. There are many stressed assets like these globally which Indian Companies must go after and become globally competitive.

    on Mar 15, 2013
    • Prince Thomas

      It is a good idea Manoj. One of the biggest success stories of the Indian metal sector - Vedanta Resources - started similarly. But right now many of the existing players are struggling with their ill-timed acquisitions abroad and thus dont have enough money. A new company though could surely explore that option.

      on Mar 15, 2013
  • Vinaayak Kshatriyan

    This is very good news for all electrosteel steel share holders generally chinese equipments are not prove trust worth and reliable in any industry so for I also have 8000 ESL share with big money loss and great future hope

    on Mar 15, 2013
  • T.k.pal.

    Achievment as focused is very encouraging. We have to see full performance and production as per design in a sustainable basis.

    on Mar 15, 2013
  • K A Prasanna

    In 2010 the company came IPO at Rs 11. The shares are now trading at Rs 6. What happened to the IPO money God only knows.

    on Mar 13, 2013
  • Nayan

    upto when it will start?????? bst of luck from my side............

    on Mar 12, 2013
  • M Rajakrishnan

    This is going to be a successful project

    on Mar 12, 2013