Kryp­tonite & Men of Steel

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As a rule, a co­me­dian should never come close to a fur­nace that takes in boil­ing iron ore. It is about as red hot and molten as an au­di­ence that isn’t laugh­ing at jokes. I, how­ever, had the good for­tune of be­ing up close and per­sonal within the heart of one of cor­po­rate In­dia’s giants pro­duc­ing the very thing that’s built In­dia. Lit­er­ally.

I vis­ited the coun­try’s most fa­mous steel plant in Jhark­hand from where steel is shipped around the world.

It is a tes­ta­ment to In­dia’s great private sec­tor giants that from the bow­els of mind-bog­glingly bizarre in­fra­struc­ture pro­vided by the state, they are able to cre­ate some­thing world class. It is through those un­even me­dieval roads (al­most no cell phone sig­nal), with no spe­cial train for its em­ploy­ees, that steel gets to every world city on time and forms the back­bone of every sky­scraper from Lon­don to Cape Town.

Way be­fore ‘Make in In­dia’ be­came a hip an­them, these guys were mak­ing in In­dia and ac­tu­ally deal­ing with what Make in In­dia en­tailed: ob­sta­cles that would make Sisy­phus give up.

Leav­ing aside the Her­culean task of run­ning gi­gan­tic blast fur­naces and steel plants and em­ploy­ing hun­dreds of thou­sands of peo­ple, In­dia Inc in­volved in man­u­fac­tur­ing has to deal with mad lo­gis­tics unique to us. The truck car­ry­ing gazil­lion tonnes of some re­fined con­struc­tion metal gets pulled over be­cause the lo­cal politi­cian’s son wants to make a de­tour. Mid­dle of pro­duc­tion, some petty feud be­tween two MLAs means there is no elec­tric­ity for a week.

A sud­den court or­der and no min­ing. Ab­so­lutely any­thing in In­dia that can go wrong, does go wrong. Then, just for fun, some more things go wrong.

Then there are the fac­tory towns. Re­gard­less of how many jobs are cre­ated, world-class fac­to­ries and plants are usu­ally in min­eral-rich towns in the interiors. In places where prom­ises of air­ports have re­mained prom­ises, the trains are rea­son­ably un­re­li­able and most road trans­port is so bad that politi­cians ar­rive by he­li­copter.

So, to run any plant, In­dia Inc has to build a whole city and es­sen­tially be­come the state.

Which begs the ques­tion: what can frighten these peo­ple? They have man­u­fac­tured in dark­ness, on dead­lines that would make city of­fice-go­ers jump out of a win­dow, with threats to life and fam­ily. The an­swer is one word: China.

The world econ­omy to­day looks like a Bigg Boss episode. Sad, bro­ken, ma­ligned peo­ple un­der the spot­light of a sali­vat­ing ju­ve­nile-des­per­ate cam­era, try­ing to make some­thing out of id­iocy. Sure, we can name and shame In­dian in­dus­tri­al­ists who can’t pay off their loans, and surely some of it is de­ceit. But a lot of it is the global econ­omy punch­ing them in the face.

This world, the news­pa­per you are hold­ing, the computer these opin­ions are typed on, the home you are in, the car that’s driv­ing you, the glass sky­scraper you work in that pays your bills, were all built with three things: oil, gas and steel.

And that same world to­day is re­ject­ing those three things. Cars on oil are pretty much over. Planes may soon fol­low. Oil prices are so low that even Saudi Ara­bia has started think­ing, “Ok, what else are we good at? Can any­one jug­gle?” Dur­ing the eco­nomic boom, China was build­ing and the world was sup­ply­ing it steel. That was the world or­der. Ev­ery­one laugh­ing. China’s de­mand for world steel was so much that South Korean steel com­pa­nies were will­ing to move to Orissa.

Sud­denly, what lay be­neath In­dia — our ore and min­er­als, how­ever re­mote and im­pos­si­ble to get to — be­came global hot prop­erty. Ev­ery­thing seemed okay as long as Bei­jing and Shang­hai grew taller and taller. Till sud­denly one day, it didn’t.

The Chi­nese said, “We’re done.” And it all started un­rav­el­ling. Steel barons in debt, shut down plants, re­duced size, ex­ited na­tions, banks saw loans bal­loon, South Kore­ans said no thank you to Orissa. One com­mit­ted sui­cide.

And the Chi­nese weren’t done. They re­versed the game. They said we don’t need this ex­tra steel and started dump­ing it around the world at ridicu­lously low prices. So low that the west that prof­ited from sell­ing steel to the Chi­nese were now us­ing that money to buy Chi­nese steel. A per­fect mad loop.

One doesn’t know what the fu­ture holds. But, cur­rently, the world’s big­gest men of steel, many of whom are In­dian, sud­denly find the steel game they’ve mas­tered over a hun­dred years is un­playable not be­cause the game got tough but be­cause there is no game. Just three ter­ri­fy­ing words: Made in China. Cap­i­tal projects are an es­sen­tial con­trib­u­tor to chem­i­cal­com­pany growth: wit­ness the half-dozen new eth­yl­ene crack­ers be­ing built on the US Gulf Coast. Such large-scale projects get a lot of top-man­age­ment at­ten­tion. But they ac­count for just over half of the chem­i­cal in­dus­try’s $400 bil­lion in an­nual cap­i­tal spend­ing.

There is an­other cat­e­gory of cap­i­tal ex­pen­di­ture that chem­i­cal com­pa­nies have strug­gled to man­age: mod­est out­lays for sus­tain­ing and main­tain­ing as­sets as well as for smallto-mid­size growth projects. Chem­i­cal com­pa­nies have an op­por­tu­nity to cap­ture sig­nif­i­cant ad­di­tional value by bet­ter manag­ing their port­fo­lios of small-to-mid­size projects.

Projects with a value of $50 mil­lion or less add up to a ma­jor por­tion of chem­i­cal-com­pany spend­ing. These ac­count for 80% of all cap­i­tal projects by num­ber, and up to 50% of cap­i­tal-spend­ing value. In our ex­pe­ri­ence, im­prov­ing the way the projects are se­lected and man­aged can de­liver sav­ings of 15-30%, and the sav­ings can be redi­rected to more value-cre­at­ing projects.

Such projects can have re­turn-on-in­vest­ment rates much higher than many larger ones: de­bot­tle­neck­ing, for ex­am­ple, can earn high re­turns be­cause they sell into fa­mil­iar mar­kets. Done right, this kind of action can also boost re­turn on in­vested cap­i­tal by as much as four per­cent­age points.

From “Small equals big: Un­lock­ing sav­ings in small to mid­size cap­i­tal-project port­fo­lios in chem­i­cals”

On the bucket list: ‘Spill’ by Su­bodh Gupta, 2007

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