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. The steel service center sector, prior to India’s globalization path, barely existed. It was in 1993 that the first service center was set up in the organized sector by Mahindra Group in partnership with Mitsubishi Corporation and Nissho Iwai Corporation.
Because of the phenomenal growth India has witnessed in the last decade or so, the service center model has now gathered momentum. New players keep entering the sector. Last year, for example, Anshan Iron and Steel Group Corp (Angang) and the South Korea-based LG International had signed a letter of intent to set up steel products processing centers in India and Brazil.
But 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 (US 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 as industries like automobiles, white goods, fabricators and others need to reduce inventory costs to maintain competitiveness.
According to a report in The Economic Times, as more and more customers start opting for customized products, India’s steel market will sell more steel products than as opposed to the more primary forms of steel.
SSCs, as elsewhere 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 will process approximately 25-30 percent of Indian flat steel output.
And as with other countries with a robust service center industry the growth will come as a result of the need to reduce inventory costs.