How to select a steel mill ( a macro level approach)

How to Select a Steel mill? (A Macro level Approach)

ByMadhusoodhanan Sayeenathan

www.knowyoursteel.com


Contents• Challenges of a Steel Buyer• Major Factors• Backward Integration• Captive Mines• Proximity• Electricity• Political Situation• Sustainability• Stable Management• Financial discipline• Safety Standards


Challenges of a Steel buyer

• Ensuring smooth production.• Right kind of material at right price and right time. • Steel - a technical product - knowledge the product is a must.• Steel Industry has evolved - increase in number of steel mills.• Buyers have to identify & develop few sources out of the

whole lot.• Smart selection based on scientific decision making.• Developing a steel source is a time, energy, resource

consuming process and steel buyers have to invest in selecting and developing a source for a long-term.


FactorsThere are various factors that one should consider while

selecting thesteel mills. This can be broadly classified in to

• Macro factors• Micro factors.In this presentation we shall delve upon the Macro Factors


Backward Integration• It is important that the steel plant is completely backward

integrated.• To have effective quality control on most of the raw materials

and reduce the dependence and supply/ availability vagaries of some of the key raw materials.

Ideally a Steel Plant should have • Pellet plant / Sinter plant• Coke ovens• Raw material handling systems.• Iron making facility- Blast furnace / sponge Iron.


Captive Mines• Cost of producion will be lower with captive mines viz., Iron ore

and Coal. • Today, this is the most important factor for any steel company in

the world. • Securing the raw materials over a long-term is what all integrated

steel plants are looking at. • All major steel companies are scouting for iron ore or coal mines

globally viz.,Many Indian, Chinese mills are acquiringour coal / iron ore mines in Australia and Africa.

• Very few companies have been prudent and fortunate enough to have mines.

• For the mills without mines, tying up the metallics on a long-term with the mining companies is the primary task.


Proximity • For any steel mill, the proximity to the raw materials is a key factor.• Since raw materials are required in large quantum, steel mills far

off from the raw material source would end of paying more freight charges and eventually become less competitive.

• Proximity to the port is another major factor. • There are many steel plants that have built their own ports. • This serves in both ways. Receiving raw materials and shipping /

exporting finished goods.• Steel mills require huge amount of water for many of the

operations and hence continuous availability of water is a must.• Ideally steel mills are located close to fresh water bodies like,

rivers, lakes.


Electricity• Iron & Steel making consumes huge amount of electricity.• Many steel plants have commissioned captive power plants and

grids to ensure their electricity cost is cheaper and continuous availability.

• Blast furnace & Sponge Iron plant waste coming out at high temperature are normally utilized to produce power.

• Some of the steel plants have become so power sufficient that they sell the additional power to the local electricity board to generate additional income.

• In power deficient developing nations, having a captive power plant significantly reduces the cost of power for producing steel.


Political Situation• A stable political environment is a pre-requisite for any

industry to survive.

• It is important that while selecting a steel mill, to know about the political situation of the state/county/country.


Pollution Control & Sustainability• It is important for a steel company to act in an

environmentally responsible manner. • These days there are some indices rank companies on their

environmental approach and sustainability.• Steel being the most recyclable material in world and can be

100% reused.• Many innovations have taken place in steel companies in

Europe that enables steel mills to use less energy to produce steel.


Pollution Control & Sustainability• There are many steel mills in the eastern part of the world

and some in CIS that are quite old and these mills are more prone to pollute the environment.

• The age of the facilities of the steel plant can imply the company’s will to keep pace with modernization & technological capabilities and the pollution level based on the age of the facilities.

• Sustainability & environmental friendly are important yardsticks for every steel buyer to check how environmental friendly their steel supplier is.


Stable Management – Vision & Mission• For any company, a stable management is so crucial. If the

company has changed many hands and frequently, then partnering with them for a long-term without proper understanding about the management’s future plans would be futile.

• The vision & mission statements, speaks a lot about an organization, its ideologies, values, ethics etc.

• It is also important for a buyer to understand as how the top management of the steel mill looks at a customer.


Financial Discipline & Credit Rating• Steel being a highly captive intensive product to produce, any steel

company has to have deep pockets to wither the bad phase of the market and to ensure how to create value for all stake holders.

• Steel Industry has witness many hostile acquisitions and sell-outs, mergers and acquisitions.

• All of them all majorly attributed to the poor financial status of the companies.

• For a steel buyer, it is essential to know the debt level of the steel company and their credit worthiness.

• There are various credit rating agencies that rate companies on their financial discipline from which a steel company’s creditworthiness can be gauged.


Safety Standards• From the number of accidents that occur in a steel plant, one

can make out how much emphasis was given to the safety of its employees.

• If the company is accredited with OHSAS 18001, then it can be a good indicator that they take all safety precautions.

• If there are frequent accidents, it shows that the company does not care about their employees, which indicates that they won’t care for their customers too.


Conclusion• The macro parameters can be common to other industries

but they are quite indispensable while analyzing a steel plant.

• Please watch out for the micro parameters in the next presentation.

• If you are looking for a metric or a ranking method based on micro and macro parameters and base your decision making on this scientific method, please feel free to contact me at [email protected].



ByMadhusoodhanan Sayeenathan


Business

How to select a steel mill ( a macro level approach)