Steel: The world's flat and long as well! - Views on News from Equitymaster

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Steel: The world's flat and long as well!

Dec 22, 2006

In our previous articles, we discussed about the broad classifications of steel and two common ways of making steel, today, we have made an attempt to focus on types of steel products and their applications and expected shift in line of operation. Talking about the value chain of steel products, all types of steel products are made from semi-finished steel that comes in the form of slabs or blooms or billets. The semi finished steel production stage differs with respect to process of manufacturing (BOF or EAF), but once the molten steel is manufactured, the value addition process is same. In the case of BOF, iron ore is refined or reduced using carbon as a reductant to a purer state and the rolled into various shapes. EAF on the other hand, uses scrap, sponge iron or overused steel to manufacture semi- finished steel which is then sent for further value addition, just as in the case of BOF.

Once the semi-finished steel is manufactured, it is converted into slabs through continuous caster route, and/or is converted into blooms and billets using ingots/ingot moduler. These slabs and billets are rolled or converted into various forms and shapes depending upon the end applications. A brief description of different types of end products (slabs and blooms and billets) and their applications is discussed below.

Semi Finished Steel: In the form of slabs, semi-finished steel is used to roll into flat products and in the form of blooms or billets, it is used to make long products.

Flat products: These include sheets, coils and plates and are mainly used in automobiles and consumer durables. Tubes and pipes also form a part of this category.

Plates are used for applications such as shipbuilding etc and vary in dimensions. Hot Rolled (HR) steel is the most widely used variety of steel and other downstream flat products such as Cold Rolled Steel and Galvanised steel are made from it.

Sheets and coils are further classified into hot rolled and cold rolled. HR sheets are used in auto components, shipbuilding and boilers. They are mainly used for further processing to Cold Rolled Coils/Sheets, which are used in the automotive and white goods sectors.

Further, finished flat products include aluminised, hot dip galvanised, electrogalvanised and pre-phosphated products mainly used in fabrication work like car bodies, ducts, consumer durables and roofing. Value added products like galvanised steel used by automobile industries have been gaining increasing importance in recent times.

Flat products are also converted into tubes and pipes. These products are used in everything from oil and gas pipelines to general construction and manufacturing and are fabricated to suit the most hostile environment.

The demand for flat products is expected to increase at the rate of 8% over next 2 to 3 years on account of buoyancy in auto and the pipes and tubes segment.

Long products: These products derive their name from their shape. The long products include bars, rods, and sections (are the large rolled steel joists-RSJ). These products are mainly used by construction and heavy engineering industries. Wiredrawn products and seamless pipes are also part of the long products group. Rail track products also form a part of this category.

Going forward, there will be excess supply in the case of long products if all the announced capacities become operational. Further, given the limited scope of value addition in this segment, the long products industry has turned rather fragmented thus impacting margins. The recent increase in input prices has further added to the margin pressure. Tough times seem to lie ahead for the long products industry.

Alloy steel: Semi finished steel is also used to produce other varieties of specialized steel such as Alloy Steel, a value added product that has got specific application and which is manufactured by lading companies like SAIL, Tata Steel and Kalyani Steel. The ever so ubiquitous stainless steel is nothing but one of the highest value added product. It is used in auto components, ball bearings, engineering items, utensils etc. Value added products enjoy better margins.

The product profile of steel companies may vary depending upon the markets they serve. As far as India is concerned, value added products are gaining importance as end user industries like automobile, white goods and construction get more developed. Thus it will be the demand from the end user industries that will drive the demand for different type of steel products. The improved product mix in turn will help companies enjoy better margins and a much improved bottomline.

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