Essar eyes Africa for steel ‘shopping centres’

Essar Steel, India’s second-biggest private sector steelmaker, plans to open a series of “shopping centres” for steel in Africa, mirroring outlets it has introduced over the past few years in India.

The “steel hypermarts” that Essar has set up in its home country cater to small merchants or private individuals, allowing them to buy steel in small quantities of a few hundred kilogrammes at a time for use in business or home-improvement projects.

“We feel there is a lot of entrepreneurial activity in Africa which is waiting there to be built on,” said Malay Mukherjee, Essar Steel’s chief executive, in an interview with the Financial Times at the annual World Steel Association meeting in Tokyo.

The Essar Group, which also has oil and gas and telecom interests, is keen to expand into Africa. It has oil and gas exploration blocks around the continent. Last year, it bought a 50 per cent stake in a refinery in Mombasa, Kenya, and is reportedly interested in joining a project to build a refinery in Uganda.

It also sees Africa’s growing economies as a potential market for its steel production, particularly the continent’s burgeoning small businesses.

The company hopes to establish an initial base of a few dozen steel centres within the next couple of years, with an eye to extending the concept if it is successful.

Mr Mukherjee did not specify which countries Essar would target to start with, but the first centres would probably be built in the east of Africa – a relatively close shipping distance to the company’s main steel plant in Hazira, on India’s west coast near Mumbai.

Essar has about 600 steel retail centres in India that together with larger, more conventional steel service centres geared toward large industrial users distribute about 4m tonnes of steel a year.

The company believes the segment of the market targeting sales of smaller amounts of steel to small businesses has been neglected by most distributors.

“This accent on new ways to convey steel to the final user is part of our effort to try to establish ourselves as being as good on the distribution side of the business as in manufacturing,” said Prashant Ruia, Essar Group chief executive.

The company expects this year to make about 8m tonnes of steel, of which 5m tonnes would come from Hazira and the rest from a Canadian steel mill which the company bought in 2007.

That total output would slightly exceed the roughly 7m tonnes of steel JSW, India’s third-biggest steelmaker, expects to produce over the same period.

Essar plans, via a series of expansions, to ramp up total steel production by 2014 to 14m tonnes, of which 10m tonnes would be made in India and the rest in Canada.

The expansion of output in India comes amid rapid growth in the domestic sector, as a result of which the country is expected by the end of 2011 to be the world’s third-biggest steel consumer after China and the US.