Diversification holds the key
Dr Bhaskar Dutta, CEO of Al Jazeera Steel Products Company, speaks to OER about upgrading capacity, the threat from Chinese manufacturers and the company’s roadmap

Bhaskar Dutta has over 35 years of experience in the steel industry. He has worked with companies like Arcelor Mittal, Tata Steel and Duferco SA. His experience ranges from dealing with products of commercial quality to alloys, tool and stainless steel in both integrated steel plants and mini-steel plants. Apart from working as a hands-on manager in operations and projects, he has travelled extensively, marketing products, undertaking due-diligence, overseeing technology absorption and ensuring effective improvement in product quality. An alumnus of IIT, Kharagpur, India, he holds a doctorate degree from the University of Sheffield, UK. While talking to OER, the CEO chalks out his plans for Al Jazeera Steel Products. Excerpts:

Global Buyout Fund took a controlling stake in Al Jazeera Steel in October 2007. What are the changes that have followed since this investment?
The private placement to Global has brought a number of strengths to Jazeera. The balance sheet of the company has become strong and its financial covenants have been brought under control. This is helping the company to leverage funds at better rates. On the managerial side, it has brought a new idiom of qualitative decision-making. A senior management team has been brought in and my appointment is a part of this process.

Al Jazeera is setting up a Merchant Bar Mill (MBM). How will this investment help the company?
The current capacity of the pipe mill is 300,000 metric tonnes per annum (mtpa). Once the MBM is up and running, the production capacity will go up by an additional 300,000 mtpa, taking the total capacity of the company to 600,000 mtpa.

We are investing over RO20 million in the plant. The mill will help us diversify our product mix and our risk quotient. It will give us better buying power with suppliers who deal in both the raw materials. Common costs will be identified and spread out. On the whole, the company will benefit from higher profitability.

Are you looking at further capacity upgradations in the near future?
Having completed the MBM investment, plans are in place to invest in the tube mill to increase its capacity by another 30 per cent and to start selling cut to length sheets and plates. We are also looking at value-added products, like introducing a polyethylene and epoxy coating line, and these plans are in an advanced stage of implementation.

Where do you see the company’s future growth coming from – is it from the region or from exports?
The GCC region accounts for nearly 70 per cent of our present market, while the US and Europe account for the remaining 30 per cent. We are working on opening up the African market for exports. Once this market develops, the MENA region will absorb 75 per cent of Jazeera’s products while the US and Europe will import the remaining 25 per cent.

Al Jazeera is also foraying into new steel products. What are the reasons for this strategic shift?
Once the MBM gets commissioned in July, we would start catering to the construction industry for their infrastructure needs like electrical transmission line towers (TLT). The sizes that we intend to roll out are being presently imported into Oman and so there is a significant market for these products. We would also like to point out that with Sohar port facilities and Vale’s pellet plant, it would be advisable for the Oman government to attract steel manufacturers to put up a melt shop and flat rolled product facilities. Shadeed Steel in Sohar is already in an advanced stage of producing billets. There is a huge demand for both hot rolled coil (HRC) and billets in the GCC region and most of this demand is being serviced by imports from China, India, CIS, Ukraine and Turkey. If Oman can build this capacity, it will benefit the Sultanate and also the region as a whole.

The steel industry worldwide is going through consolidation. Does this create a new set of challenges for a mid-sized player like Jazeera?
The infusion of funds from Global Investments of Kuwait has made us a strong company financially. We must also give due credit to several local and international banks for supporting us in raising our borrowing limits, especially when steel prices have more than doubled in the last six months. Given our financial strength, we feel the global consolidation of the steel industry will not affect us in the near future. Moreover, with a prospective turnover of well over RO100 million in 2008, we are no small player in the market.

How much of a threat is the incidence of price undercutting by Chinese steel exporters? Has Jazeera Steel identified a strategy to counter this challenge?
Chinese manufacturers are a threat to any industry and competing with them head-on in terms of pricing is almost impossible. On our part, we would like to highlight the company’s strengths like Jazeera’s brand equity in the region. The logistical advantage of being a local supplier cuts down the lead time for delivery apart from lowering transportation costs. In addition, we can deliver small lots to traders helping them to reduce inventory costs. The proven quality of our material and its finishing has always been appreciated by our customers. As we are a company located in the GCC region, we are a preferred supplier in the MENA region. Since we buy some of our raw materials from China, convert them and export it to other countries, this also helps us to offer competitive prices vis-à-vis other players in the market.

How has the company fared financially in 2007 and what kind of growth do you expect in 2008 and in the years ahead?
The year 2007 was a turnaround year for Jazeera. The company did a pipe production and sale of 145,000mt. The turnover was around RO45 million with a bottom line of RO1.7 million. In 2008, we expect substantial increase in our production and sales. The production from the pipe mill will in itself touch 200,000mt. This will translate into sales of RO100 million. The MBM will contribute another 30,000 mtpa, which will add RO15 million to our turnover. The current steel market is bullish and we expect profits to touch new highs. As infrastructure spending in the MENA continues to grow, there is going to be more demand for steel products in the next five years and companies like Jazeera will reap
the benefits.
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