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

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

By
Madhusoodhanan Sayeenathan
www.knowyoursteel.com


Contents
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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
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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.

Factors
There are various factors that one should consider while
selecting the
steel 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
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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.
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If the company is accredited with OHSAS 18001, then it can
be a good indicator that they take all safety precautions.

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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
buzzmadhu@gmail.com.

By
Madhusoodhanan Sayeenathan


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

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