By Kunal Bose
Much to the surprise of many informed watchers of Indian business’s triumphant entry into highly competitive economies, the announcement by President Donald Trump himself of Essar Group to herald the building of the largest ever steel plant in the United States found scant coverage in our media, including the business newspapers. Mercifully, The Times of India was an exception whose prolific and perspicacious Washington based correspondent Chidanand Rajghatta did full justice to the breakthrough development in the US steel industry involving an Indian group by penning over a thousand words on the story.
As happened with Rajghatta, the occasion was appropriate to recall the visit of Jamsetji Nusserwanji Tata, the founder of the eponymous Group, to the US in search of steelmaking technologies nearly a century and a quarter ago that would finally result in the birth of a plant at Jamshedpur, which now has capacity of 11m tonnes. Incidentally, the Group founder Tata did not live to see the commissioning of steelmaking at Jamshedpur. (JN Tata died in Germany in 1904 and Jamshedpur production started in 2012.)
Indian steel, which now stands next only to China in terms of capacity and production, therefore, owes a debt to the US. On successful execution of the proposed steel plant by Essar owned Mesabi Metallics at Iowa, that debt will not only be repaid but the venture will once again remain a statement of the genius of Indian entrepreneurship. In steel, thanks principally to Lakshmi Niwas Mittal, who either on his own or at the behest of his father Mohan Lal Mittal went to Indonesia in 1976 to build a greenfield steel mill. Most likely what prompted LN Mittal to seek fortune abroad was the then highly restrictive policy regime relating to steel deflating ambition of young entrepreneurs.
In launching and then running PT Ispat in an economy open to competition, particularly from Japan then, Mittal underwent baptism by fire. The 26 year old businessman from Calcutta (the city still had not been renamed Kolkata) had many financial and technological innovations up his sleeve to overcome the hurdles he faced in commissioning and then running the mini mill. He found the answer to high prices and occasional supply issues of scrap by creating facilities for making the alternative feedstock direct reduced iron (DRI). He lived there uninterrupted for over a decade to make the venture profitable and gain financial muscle and confidence to launch himself on the steel global map.
If Mittal’s maiden takeover of a steel business thousands of miles away the bleeding state owned Iron & Steel Company of Trinidad & Tobago (ISCOTT) in 1989 was a statement of his ambition to be counted as an industry leader, his strategy to walk to that goal was to buy ailing enterprises and then turn these around by applying corrective measures. His turnaround formula was flexible depending on the kind of sickness of a particular unit. Unlike all other Indian venturers managing large businesses in the West, Mittal used the services of Indian experts in steel technologies and finance on a significant scale to improve the working of bleeding steel mills in different locations with problems and challenges unique to each. So, the strategy for operational and financial turnaround of each taken over steel company had to the different. All this apart, the sharp but affable Mittal had to manage the political and business environments of host countries, a challenging task.
Mittal passed his litmus test in acquisition followed by steadying the ship (acquired asset) in 1992 when following prolonged negotiation, he got control of the Mexican government owned Sibalsa. In making this unit profitable, the knowledge acquired by Mittal in Indonesia, particularly use of DRI to effect saving in cost came handy. Years later in 2006 happened the crowning glory for Mittal when following many skirmishes, he managed to buy Arcelor at a whopping cost of $34.4bn. And that then created the world’s largest steel group ArcelorMittal. However, that crown now belongs to China Baowu Group, resulting from a series of mergers creating a consolidated capacity of around 125m tonnes.
In the meantime, as part of capacity optimization, ArcelorMittal has sold a number of units, including some in the US to become a distant second largest group in the world. Perhaps what tested the skills of turnaround Indian born artist Mittal the most was the Kazakh steel mill. But once the mammoth ship was steadied, the operations came under official fire because of a series of safety failures and the Kostenko mine accident killing 46 people. Mittal finally sold the unit to a Kazakh state fund in December 2023. To sum up, Mittal is all about adventure, learning, seizing opportunities and institution building.
The success of Mittal in unfamiliar environments continues to come as an encouragement to Indian groups and businessmen of Indian origin to try their luck in acquiring foreign steel assets. Unarguably, the most audacious acquisition in steel by an Indian Group was the Anglo-Dutch steelmaker Corus (since renamed Tata Steel Europe) in January end 2007. On behalf of Tata Steel, Ratan Tata himself was in the driver’s seat at the nine-round auction to cast the winning bid against the Brazilian steel company CSN. In retrospect, what the late Tata thought a prized acquisition has turned out to be a management nightmare for Tata Steel.
Luck was not with Lord Swraj Paul either when he bought the US Sharon Steel’s Farrell, Pennsylvania assets in late 1992. Lord Paul did all the right things like demolishing the blast furnace found in structural disrepair, creating a mini-mill instead to melt down recycled steel scrap and modernising the finishing mills. What, however, outdid all the corrective efforts of Lord Paul was the coincidence of steep falls in US steel prices caused by high imports of cheap steel, particularly from China. What served the coup de grace was failure of Caparo to raise a nearly $150m line of credit in a highly depressed steel market which the complex needed for further modernisation. His Caparo Group never since attempted steelmaking, instead focussing on high value addition to steel, making him a multi-billionaire in the process.
Such setbacks did not, however, deter some others in this country intensely keen to acquire steel assets in the US and Europe in the hope of Indian cost-effective ways of steelmaking could bring redemption. JSW Steel is doing a good job of its two US units, namely, Baytown, Texas and Mingo Junction, Ohio producing slabs through an electric arc furnace and plates and spiral welded pipes in the downstream. Naveen Jindal having drawn a blank in his spirited bid to acquire Germany’s Thyssenkrupp Steel is now evaluating a 5bn Euro bid for Celsa with steel assets in France, Spain and Poland. In his private capacity, Naveen owns a 3.2m tonne complex in Oman where he is now putting up a 5m tonne DRI plant.
To return to Essar, the Ruias have excellent credentials in building greenfield steel complexes. Confirmation of this came from ArcelorMittal and Nippon Steel when they jointly acquired Essar Steel assets in India in December 2019. Hopefully, Essar owned Mesabi Metallics will do a good job of building a 10m tonne plant at an investment of $115bn in Iowa. The very high level of protection steel enjoys under Trump Administration should underline the success of US venture of Essar. (IPA Service)
