Tata Steel rushes to Metaliks’ aid as ore scarcity bites

Tata Steel has decided to handhold its listed subsidiary Tata Metaliks Ltd as the pig iron maker fights a losing battle against multiple adversities and has suffered a loss in the first quarter.

Tata Metaliks’ plan for a 3 million tonne integrated steel making facility in Karnataka, chalked out before its problems started, would now be executed by Tata Steel, which holds a 46% stake in the firm.

The move would create a financial burden of Rs15,000 crore on Tata Steel at a time when its own profitability is under strain due to high raw material costs and subdued demand in Europe.

Rising inputs costs, particularly of coal and coke, have been troubling Kolkata-based Tata Metaliks. The recent ban on mining in Karnataka’s Bellary-Hospet region, the main source of iron ore for its plant at Redi, Karnataka, was a big blow. To make matters worse, its ductile pipe making joint venture with Kobuta of Japan has also suffered hiccups.

So who but the parent company to look up to?

“The project cost for the 3 million tonne plant has been estimated at Rs15,000 crore, which would be undertaken by Tata Steel now, while we would be a strategic partner,” said an official of Tata Metaliks.    

The Kolkata-based subsidiary will, however, fund minor investment plans —- setting up a sinter plant at its Kharagpur facility in West Bengal at a cost of Rs98 crore and upgradation of a blast furnace for Rs27 core, etc —- out of its own resources, said the official, requesting anonymity.

The integrated plant has been planned over 2,500 acre at Haveri district of Karnataka for which Tata Metaliks has already made advances to Karnataka Industrial Area Development Board and acquisition of land is currently on.

There are more ways in which Tata Steel is helping out Tata Metaliks.

The steel major has carried out the prospecting operations over 155 hectare for the subsidiary’s iron ore mine at Sindhudurg in Maharastra.

“The prospecting report and also the application for the mining have already been submitted and we are currently awaiting grant of the mining lease,” said the official.

Another area where Tata Steel has helped out its subsidiary is development of what is claimed to be world’s first branded pig iron, named ‘Tata eFee’. Jointly developed by Tata Steel’s research and development department and Indian Institute of Management Kharagpur, the branded pig iron, which would be rolled out nationally, melts faster than existing foundry grade pig iron, thereby reducing energy consumption.

“After successful pilot launches in southern and western markets, we now plan to take eFee across the country over the next few months. Work is on to standardise the product quality across various categories,” the official said.

But despite such generous parental support, the company may find it hard to wriggle out of the tight spot it is in today. Indeed, the world’s largest producer of foundry-grade pig iron ran the risk of being forced to close down its Redi plant following the Karnataka mining ban. Though that eventuality didn’t occur, as the company started bringing ores from the eastern region, the costs have gone up. To top it all, foundries are not willing to commit themselves to long-term off-take agreements with it and lower-cost substitutes like basic grade pig iron and steel scrap are more easily available, leading to customers switching over.