JSW Steel To Set Up Electric Steel Plant

JSW Steel, in a press release filed with the BSE, has announced its strategy of adding more value-added products to its portfolio by foraying into the manufacture of steel used for electrical purposes. The company has planned to set up a 0.6 MTPA electrical manufacturing steel capacity at its Vijaynagar plant in Karnataka. More specifically, the company will produce 0.4-0.5 MTPA of cold-rolled non-grain oriented (CRNO) grade electrical steel, mainly used by the power companies in the production of generators, alternators, ballasts, distribution transformers, and motors used in appliances.

The company has further stated that in the first phase of the facility it will produce 0.2 MTPA of CRNO which is expected to get commissioned in the next 24 months from the date of receiving requisite approvals. In future it may also produce cold-rolled grain-oriented (CRGO) grade of steel which is of higher quality than the CRNO grade steel. It has not provided any information about the proposed investments for this plant.

The plant will be set up in collaboration with JFE (ownership of 15 per cent in JSW Steel) which is one of the largest integrated steel producers in Japan. JSW Steel entered into an agreement with JFE in July 2010 for providing technical assistance against which JSW offered its stake for Rs 4,900 crore.

The electrical steel products will definitely be a value addition to the company’s product portfolio which includes products such as hot rolled coils, cold rolled coils, bars, billets, etc. The portfolio will now cover infrastructural usage to automotive and the power sector. There are very few players who have the technological advantage in manufacturing electrical steel products. Therefore, the requirements are usually met through imports. JSW Steel, with the help of JFE’s advanced technology, had earlier entered into an agreement to collaborate in automotive steel manufacturing at its Vijaynagar plant.

Value-added products provide good opportunity as the margins are significantly higher when compared to other steel products. JSW Steel with its 0.5 MTPA production of CRNO steel will generate Rs 2,200-2,250 crore in its topline and we feel that the EBIT margins will remain between 25-35 per cent.  However, the 0.2 MTPA CRNO plant will start contributing to the revenue from only the second half of CY2014.

CRNO grade steel is currently available at a China FOB price between USD 800-1,000 per tone, which is higher than normal steel products such as HRC that is currently available at USD 674 per tonne. In our opinion, CRNO represents an interesting opportunity as the margins are significantly higher than the high-volume produced steels and the rising energy demand continues to place upward pressure for power generation products. On the demand side, the company at present perceives a total demand of 0.5 MTPA and expects it to grow at a CAGR of 15 per cent.

About CRNO

Non-oriented electrical steels are silicon steels in which the magnetic properties are practically the same in any direction of magnetism in the plane of the material. These are widely used in power generators for hydraulic, gas and steam turbines, large-sized electrical machines, motor generators and high-frequency convertors, etc.