MUMBAI: Essar Steel and the UK-based Stemcor have teamed up again, this time to set up a cold rolled steel (CR) unit adjacent to the Ruias' steel plant at Hazira in Gujarat. The two already have a joint venture called Hy-Grade Pellets, which makes pellets. The CR project, estimated to cost Rs 250 crore, will have an initial capacity of 400,000 tonnes and is scheduled to be commissioned in phases over the next 12 months. The capacity may be later hiked to 700,000 tonnes.

Funding details are being worked out. In the proposed JV, Stemcor may have majority stake. The proposed unit, which is expected to make galvanised steel, is being set up to cash in on the strong demand. Prices of CR and galvanised products have risen by over 50% in the past one year. Sources said Essar Steel will provide the infrastructure including leased land and power. Essar Steel had recently advertised calling for strategic investors in downstream and upstream facilities.

Essar Steel is likely to thrash out a long term agreement for supply of HR coil, the main input to making CR and galvanised steel, sources added. The proposed project will enable the 2.4m tonne Essar Steel find a ready buyer for its products and also generate revenue from providing the infrastructure.

Essar already ships about 100,000 tonnes to its plant in Indonesia, PT Essar Dhananjaya, till now the group's sole CR plant.

The plan comes against the background of the recent re-issuance of import quotas from China, the largest importer of steel in the world. The new quotas stipulate a requirement of 5.7m tonnes of cold rolled steel (CR) and 0.6m tonnes of colour-coated sheets. This is apart from galvanised steel for which Indian firms are not required to conform to quotas.

The country's largest exporter of galvanised steel is Jindal Iron and Steel (Jisco), which exported over 40% of its 550,000-tonne production to China alone in the last fiscal. Other CR and galvanised steel companies include Tata Steel and Ispat Industries.

Incidentally, Essar, Ispat and Jindal Vijaynagar are the three primary steel companies implementing a debt restructuring package cleared by lenders.

The UK-based Stemcor is a $2bn international trading house, primarily engaged in the trading of steel and steel products with annual trades of over 10m tonnes.