Tag Archives: how to select steel mill

How to Select a Steel Mill ? (A Macro Level Approach)

Steel Industry has evolved over past couple of decades thanks to the onset of industrial expansion and globalization, the number of steel producing companies have grown many fold.  Many buyers of the previous decade would never forget those dreadful days when steel mills dictated the terms as buyers did not have many options, but to live with them.

The role of a purchasing manager in any organization is vital, as they have the onus of ensuring availability of right kind of raw material at the right time and right price for smooth production.  Steel, being a technical product, leaves the job of a steel buyer even more strenuous.

 Today’s steel buyers face a different challenge. With the availability of many sources globally, one has to be smart enough to select few mills on based on various factors and arrive at their decision on a scientific manner.  This is crucial, as developing a steel source is a time, energy, resource consuming process and steel buyers have to invest in selecting and developing a source. So when the selection is done, they ensure that the steel mills support them for a long term. Any organization which is long-term oriented would follow the process of auditing the steel mills before selecting them as a supplier partner.
Following will help to answer ” How to Select a steel Mill”?

There are various factors that one should consider while selecting the steel mills. This can be broadly classified in to

  1. Macro factors
  2. Micro factors

In this blog, only macro factors are considered.

I.Macro Factors:

Macro factors can be common for many industries and some of them are specific to steel industry. Following are some of the key macro factors to be considered. ( These are mentioned not in the order of importance)

1. Backward Integration :

It is important that the steel plant is completely backward integrated so as 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 the steel plant should have

  1. Pellet plant / Sinter plant
  2. Coke ovens
  3. Raw material handling systems.
  4. Iron making facility- Blast furnace / sponge Iron.

2. Captive Mines :

Some of the mills that have the lowest cost of production are those 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 and no surprise, we are seeing many Indian, Chinese companies taking over coal / iron ore mines in Australia and Africa.

The ideal situation for any steel plant would be to have own iron ore and coal mine. But this is not the reality. Very few companies have been prudent and fortunate enough to have them.

For the rest, tying up for the metallics on a long-term with the mining companies is the primary task.

3.  Proximity to raw materials & Port :

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.

4. Electricity :

Iron & Steel making consumes huge amount of electricity and 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 developing nations, having a captive power plant significantly reduces the cost of power for producing steel.

5. 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.

6. Pollution Control & Sustainability :

In a world of carbon credits, where the entire globe is trying to save the planet from global warming and reduce the green house gases and carbon-di-oxide emissions, it is important for a steel company to act in an environmentally responsible manner.

These days there are some indices available that rank companies on their environmental approach and sustainability.

Steel being the most recyclable material in world and can be reused 100%, steel mills should try to use as much as internal wastage as raw material, which not only save their input costs, but also helps the environment.

Many innovations have taken place in steel companies in Europe that enables steel mills to use less energy to produce steel.

But there are also 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.

7. 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 statement, speaks a lot about an organization, its ideologies, values, ethics etc. This throws light on where the company wants to be and how it intends to achieve it and whether this has percolated to all the employees.

It is also important for a buyer to understand as how the top management of the steel mill looks at a customer. Whether they are looking at long-term partners & customer friendly or whether they are opportunists.

8. Financial Status / Credit Rating :

Maintaining a financial discipline and ensuring a profitability business is the basis of any business.

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.

9. 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.

If the company is accredited with OHSAS 18001, then it can be a good indicator that they take all safety precautions.

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.

 

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.

Happy Steeling!!