POSCO Signs its Fourth Order with Essar Steel to Procure HRC

POSCO Maharashtra has signed a Memorandum of Understanding (MoU) with Essar Steel to buy 1 MnT of Hot-rolled coil (HRC) worth INR. 5,000 crore. The said volume of steel will be used to manufacture value-added steel products like coated steel. This is the company's fourth MoU with Essar Steel that has earlier supplied 2.5 MnT of steel to POSCO over the last five years.

POSCO's management mentioned that buying steel from Essar Steel gives a cost advantage to the company as Essar Steel's Hazira plant in Gujrat is close to POSCO's Maharashtra facility and the transportation takes place through the sea route from Hazira to Dighi port. Apart from this competitive advantage in terms of cost, the quality of Essar Steel's steel products have also improved over time, the management highlighted.

The development holds significance as Essar Steel is still undergoing insolvency resolution process for having failed to pay banks debt worth INR 49,000 crore as a plan offered by ArcelorMittal is awaiting a final nod by courts.

Posco's partnership with Essar Steel started with a trial order of 1,000 tonnes in 2014-15 which was followed up by a bulk order of 10,000 tonnes in 2015-16 and ended the year with a total supply of 62,000 tonnes. The completion of this order finally led to the first MoU in 2015-16 for an order of 650,000 tonnes. The quantity was enhanced the following year to 850,000 tonnes. This was further enhanced to one million tonne in 2017. During this period, 16 new grades of steel have been developed for auto and other special applications.

Essar Steel has been ramping production over the last few years and the company's capacity utilisation has increased from 40% since it was admitted for insolvency close to two years ago to 85% currently. It produced 6.9 million tonne steel last fiscal year (FY18-19) out of a nameplate capacity of 8.4 MnT and is expected to clock more than 7 MnT production this fiscal year. On the other hand, Posco Maharashtra has a 2 million tonne steel plant in Mangaon and is part of the Posco Group, a fifth largest steel producer in the world.