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L A T E S T  N E W S

Minerals & Metals Reviews March 2002

GUJARAT SPECIAL

Shah Alloys is one of the leading manufactures of 200 series stainless steel in India. With a market share of over 20%, Shah Alloys has reported Rs. 105 million net profit in 2001. Not satisfied with it's hold on the domestic market, the company is eyeing the export market. MMR caught up with the company's dynamic MD Rajendra Shah to find out the secret of his success.

Stainless Steel production in India is rapidly growing every year. Today 75% of the end use market of stainless steel is still in kitchen segment. Around 95% of the gas stove market uses only stainless steel which until the late 80's was using painted carbon steel bodies and later nickel-chromium plated. ones. Industrial applications account for the- Remaining 25 per cent. However, this balance has shifted slightIy from five years ago when 85 per cent of the production was being used to produce steel utensils.

India has emerged as the largest producer of 200 series low nickel stainless steel in the world. Stainless steel is an alloy steel that uses nickel as a prominent alloying element. Indian stainless steel production has grown rapidly in the last 20 years. The production for 2000 stood al 7,50,000 tons and has been growing at a CAGR of 8.4 percent in the last five years. With this, the industry dynamics are also changing. Today, after Jindal Strips, the second largest manufacturer of the 200 series is Shah Alloys. With a capacity of 2.50,000 tons Shah Alloys is a premier manufacture of 200 series,

Shah Alloys – A brief history

Incorporated in the early 90' the company was originally started to manufacture alloy steel castings. carbon and manganese steel castings, ingots and billets. Its initial capacity was 15,000 tons per annum for ingots and slabs at a capital cost of Rs. 26.39 million. Having established its operations and achieving maximum capacity utilisation, the company went in for expansion and increased its capacity to 45,000 tons per annum at a capital cost of Rs 71.15 million.

In July 1994, looking at the overall favorable market conditions, additional equipment at total project cost of Rs. 42.5 million to manufacture 15.000 Ions per annum of Stainless steel ingots within the overall capacity of 45.000 tons per annum was installed. Says Mr. Rajendra Shah. Managing Director of Shah  Alloys. "We realised that in the coming  years there is bound to be overcapacity in the mild steel sector and the stainless steel segment would be more profitable than mild steel. That is when we decided to have a greater focus on this sector."

Looking at the overwhelming response for stainless steel ingots and flats from the market, the company expanded its installed capacity by 20.000 tons per annum with a capital cost of Rs. 65.2 million. The project was completed in July 1995, but due to power problems, the production commenced only in January 1996. According to Shah, as that time, it was planned to install a capacity of 30,000 tons per annum for manganese steel products and 35,000 tons per annum for stainless steel .But today the company is Utilising capacity mainly for stainless steel products.

A look at the financial performance of the company given below in the table and we can see that Shah's move paid off well for as the world steel industry is reeling under overcapacity and high costs, Shah Alloys financial performance has been improving steadily over the last few years. Although margins in the stainless steel industry are not that high. Shah Alloys has shown a consistent growth pattern.

Stronghold on domestic market

Rajendra Shah attributes this steady growth to the growing awareness amongst people about Stainless steel. "Over the last few years the stainless steel industry has grown spectacularly in India with maximum demand from the kitchen ware and utensils segment." says Shah. With a market share of around 25 per cent and a production of approximately 22.000 tons a month. Shah Alloys currently caters exclusively to the domestic market. Nearly 40% of its total production, which is around 8.8OO tons a month of stainless steel currently goes to Jodhpur in Rajasthan because of the traditional utensil industry based there. It is also the biggest supplier of steel to the Salem . Stainless Steel plant of Steel Authority of India Limited (SAIL) and supplies 1500 tons per month to the company. Shah also claims to be the single largest supplier to the Narmada dam project, although he is not very forthcoming about the quantity of material supplied for the dam.

Eye on the export pie

As its hold over the Indian market continues to grow, Shah Alloys is now eyeing the export market with its main competitor find. Jindal Strips emerging as the largest exporter of 200 series. Shah Alloys, not to he left behind in the export race is hopeful of nothing up a good export performance by the end of the next fiscal. "Till now we had been concentrating totally on the domestic front but by the end of this current fiscal we will have entered the export market," states Shah. Shah Alloys has already bagged export orders from. Iran and Malaysia. Its first consignment of 100 tons of steel worth Rs 10 million for Iran will be leaving shortly. Although in the current fiscal  the company doesn’t expect  to have exports of more than 50 million, Shah is hopeful of doing exports worth  Rs 2 billion by the end of fiscal 2002. "We are looking at capturing the markets in USA, Asian majors like Thailand, Singapore, Malaysia and the EU," says Shah confidently.

Another major market for Stainless steel today is South Africa. When we quizzed Shah about the company's plans for investments in South Africa although he showed an interest, he did not reveal any immediate plans about the company's interests. "We know that South Africa is emerging as an important country in the stainless steel industry. In fact, they are scouting for Indian technology to develop their industry. but, as of now we have been not been approached by them, although, we have heard that Jindal Strips is planning to provide them with the technology for producing the 200 series steel", he added.

200 Series – Unique to India

Most developed or developing countries find it 'very difficult to produce stainless steel indigenously because of the complicated procedure of manufacturing stainless steel. Stainless steel as mentioned earlier is an alloy which uses nickel and manganese in large quantities. 200 series stainless uses nickle in smaller percentages. The 200 series manufactured by Shah Alloys has 0.5 percent nickel, 9% manganese, 1.7 % copper and 1500 ppm of nitrogen while the 3000 series uses 8 percent  nickel upto 1.2 per cent manganese, 500 ppm nitrogen and no copper. "If you see the composition you will realise that producing stainless steel is not like producing a single product. To manufacture this product to precision with the right quantities of metal and bring out a single product is not an easy job. It requires high degree of technical expertise?, excellent knowledge of steel products and high costs due to the various categories of products involved. And there is no other company in the entire world except Jindal Striips and Shah Alloys that manufactures the 200 series". says Rajendra proudly. Interestingly, Shah also claims to be the sole manufacturer of 1800 mm or 1.8 mts wide coil which is of great demand in the international market. "The demand for this particular product gives us an edge over Jindal Strips who manufacture coils of maximum width of 1500mm and Salem steel who manufacture upto 1200 mm width. We expect to capture a huge export chunk by tapping the potential of this market as no other company manufactures coils of this width “ says shah.

Price outlook

Shah is very upbeat about the demand for the 200 series in the near future, both domestic and international. In India, according to Shah, the demand for stainless steel is growing by more than 15 percent and he expects growth to continue steadily for at least the next seven to eight years. "As awareness of stainless .steel will increase the world over, the market is going to boom," opines Shah

A Reason for the increase in the growth of stainless steel segment he says is the low maintenance cost and longer life of stainless steel  besides , the price of stainless steel in India has also gradually gone down. The price of stainless steel today is Rs 30 per kg  inclusive of all taxes. But till a few years ago. the price was almost 10 times that of mild steel In The next 2-3 years. Shah expects stainless steel prices to rise by 15-20 percent as the he expects the demand to rise by 1 percent. One of the other reason for the price rise is also nickel The price of stainless steel is decided by  the price of  its main alloy, nickel. The international, price of nickel have been soft the last couple of years. It stood $ 6,065 per ton in February 2002 as compared to $6,995 a ton in February 2001, which is much lower than $9,414 per ton in January 2000. So a lot depends on nickel prices and nickel being very volatile has a significant impact on the prices of stainless steel.

Unorganised sector- a bane the industry

Even though Shah Alloys is one of the dominant players in the stainless steel segments the unorganised sector in this industry is a cause for grave concern to the company. With 20 per cent market share cornered by this segment, Shah thinks that it is a very big threat to the organised industry today. “The unorganised sector picks up I scrap steel after end consumption at dril cheap prices and process it to come up with low priced, low quality steel”  he laments “Besides, this segment pays no taxes uses slogan power and has very low overheads, which reduce there cost of production.