Essar pipe mill on hold, for now

Just six weeks after spending $50 million to recommission its No. 6 Blast Furnace, Essar Steel Algoma had to shut the facility down.

No. 6 is just one of a number of initiatives Essar Steel has had to put on the back burner in recent months, due to a downturn in steel demand.

Essar Americas President Madhu Vuppuluri says it will likely get worse before it gets better.

But, it will get better again.

And when it does, Vuppuluri says Essar will be looking at Sault Ste. Marie as a possible location for a wide-diameter pipe mill to serve the oil and gas sectors.

Vuppuluri can be seen on the left of this picture with Jatindar Mehra, chief executive officer of Essar Steel Holdings, during a media conference this past week in Sault Ste. Marie.

"Oil at this point in time is $33 a barrel," said Vuppuluri. "There's no incentive. There is no point in getting involved in this at this point in time. But at the end of the day there has to be a total integration."

There will be conditions, though.

Vuppuluri was very clear about that.

"There has to be secure inputs and there has to be a captive consumer," he said. "In India we have a complete downstream. We own the service centres [that would use the pipe]."

Vuppuluri said a pipe mill in Sault Ste. Marie could use material from Essar Steel Algoma to manufacture pipes and reduce dependence on imports.

"Ultimately, the idea is that you should have a fairly high percentage of your consumption captively held downstream units," he said. "And one should have a fairly large control on the imports so that you are protected against any volatility in the market."

Vuppuluri was also clear that a pipe mill could be part of Essar Steel's long term planning, but first the company needs to get through this long, deep downturn.

"We were very keen to have it in Sault Ste. Marie, but it should be remembered that it is a very competitive business," Vuppuluri said. "You cannot have the mental frame where we will do it whatever be the cost."

A pipe mill must be able to make a profit in the Sault or there will be no point for Essar to build it here, he told reporters.

Essar Steel Algoma Chief Operating Officer Armando Plastino added that locating a pipe mill in the Sault would require some significant cooperation and recognition that it's a processing facility, not a steel mill.

"It's very competitive and the costs have to be much lower as a result," Plastino said. "It requires a different framework and we're confident that it should be able to be worked out."