Expanded Algoma Facility Key to Essar Steel’s Strategy for North America
10/07/2008 - Essar Steel Algoma will expand capacity by an additional 25%, to a total of 4 million tonnes by March 31, 2009, with the help of capital projects including a new co-generation facility, additional emissions reduction technology, and a state-of-the-art port in the western perimeter of its plant.
Essar Steel Algoma Inc. announced plans to expand capacity by 25%, to a total of 4 million tonnes by March 31, 2009. The company has budgeted 170 million Canadian dollars (about Rs750 crore) in capital expenditures, according to Sandeep Dixit, Vice President for Finance, with specific projects including the installation of a co-generation facility, additional emissions reduction technology, and a state-of-the-art port in the western perimeter of its plant.
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Essar Steel’s expansion into North America began in June 2007, when it acquired Algoma Steel for C$1.85 billion.
The following October, Essar Steel bought Minnesota Steel for an undisclosed sum. Minnesota Steel provides Essar Steel with high-quality iron ore reserves estimated at 1.4 billion tonnes, which will start feeding Essar Steel Algoma in about two years.
In the longer term, the company is planning to develop an integrated steel plant in Minnesota in about six years.
Essar Steel Algoma’s continued expansion is part of Essar’s plans to boost global steel production more than two-fold by 2012, from its present annual production of 9 million tonnes.
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The company is also spending C$90 million to put in place systems to reduce air emissions from the steel plant.
Essar Steel Algoma, which employs about 3,500 people, has already raised annual production from its previous 2.4 million tonnes to its present 3.2 million tonnes, and posted record EBITDA (earnings before interest, tax, depreciation and amortization) in the quarter ended June 30.
"We have successfully implemented the best technological and engineering practices from across both the organizations," said Armando Plastino, Chief Operating Officer of Essar Steel Algoma, in a published statement. "This has resulted in a 30% improvement in productivity. The integration has produced positive results, with both organizations aligned with a view to growth."
In the fiscal first quarter, the privately held company generated C$204.3 million EBITDA, C$132.9 million more than in the preceding three months, the statement said. In December, the company paid C$135 million of debt. It had C$165.7 million of unused credit lines available as of June 30.
Essar Steel Algoma is also drafting a plan to build a so-called state-of-the-art port on the western perimeter of the 2,000-acre Sault Ste. Marie facility to handle more ships and meet rising demand for raw materials including iron ore and coal, said company spokeswoman Brenda Stenta.
The company expects the facility’s annual demand for iron ore to grow to 5.7 million tonnes from the present 4.64 million tonnes, and demand for coal is expected to grow to 2.3 million tonnes from the present 1.7 million tonnes with the planned increase in capacity.
“It is a plan and it is a vision, but we are nowhere near a timeline yet,” said Stenta. “We are talking to community partners and other industrial players that want expanded capacity.”
Local companies that have shown interest in partnering in the project include Tenaris Algoma Tubes, a maker of steel pipes, St Marys Paper Ltd and marine services and equipment firm Purvis Marine Ltd, she said.
Demand for steel is expected to slow in the face of a global economic downturn, and prices are already beginning to soften after surging in the year to July, but Essar Steel officials say the company has de-risked its business by keeping costs low, and through its geographical spread and value-added production targeted at industries including oil, general engineering and automobiles.
"If there is a recession in one industry, we can focus on another," said a Mumbai-based spokesman. "And if you are able to save on costs, you can ride it out unless there are cash losses. We are among the top 20 percentile of lowest-cost producers. The remaining 80% have to get hit before our turn comes," he added.
