India’s Steel Service Centers Set To Grow

For a change, neither steel mills nor iron ore mining companies have made the news. Instead, India’s fledgling steel service centers (SSC) take front page.

In a recently released report, consulting firm Frost & Sullivan predicts that the country’s SSC market would grow at a compound annual growth rate of about 18 per cent until 2017-18.

Unlike some other steel-producing companies, SSCs remain a relatively new phenomena in India. It barely existed prior to India’s globalization path. In 1993, the first service center was set up in the organized sector by Mahindra Group in partnership with Mitsubishi Corporation and the Nissho Iwai Corporation.

The service center model has gathered momentum due to the phenomenal growth India over the last decade. New players keep entering the sector. Last year, Anshan Iron and Steel Group Corp (Angang) and the South Korea-based LG International signed a letter of intent to set up steel products processing centers in India and Brazil.

Even today, SSCs make up only about 15 percent of India’s total flat steel production, still very low as compared to approximately 60 percent of other leading steel producing nations (U.S. service centers handle between 50-60% of all shipments).

The Frost & Sullivan report expects the SSC market to enter a period of accelerated growth in the next decade. Industries such as automobiles, white goods, and fabricators need to reduce inventory costs to maintain competitiveness.

According to the Economic Times, more and more customers have started opting for customized products. India’s steel market will sell more steel products rather than the more primary forms of steel.

SSCs play the role of value-added intermediary a connector between steel makers and final manufacturers, and include supply chain management, procurement services, technical services, stocking, processing and just-in-time (JIT) services.

According to Frost & Sullivan, steel consumers prefer sourcing material from SSCs over distributors or steel manufacturers because of shorter lead times, smaller batches, logistics costs, product range and quality. SSCs process approximately 25-30 percent of Indian flat steel output.

As with other countries with a robust service center industry, growth will come as a result of the need to reduce inventory costs.

by Sohrab Darabshaw