The new owner of Sri Lanka’s former Ceylon Steel Corporation says he will upgrade the facility to produce TMT steel, and will turn around the debt-laden steel producer in four years.
The Ceylon Steel Corporation was originally sold to South Korea’s Doosan Group and renamed Ceylon Heavy Industries and Construction Co. (CHICO). Last week the country’s biggest steel producer changed hands again, with another load of debts. This time the buyer is a Sri Lankan businessman with steel and construction related interests in the United Arab Emirates (UAE). The new owner, Mr Nandana Lokuwithana, bought the company at the invitation of the government.
Nandana Lokuwithana |
The transfer will bring US$ 65 million into the company over the next two-and-a-half years, to upgrade, increase capacity and pay off debts. “The total investment in the company will come to US$ 65 million. We will make this investment over a period of two to two-and-a-half years. We are hoping to break even and show profits within four years,” said Mr Lokuwithana, who is the Chairman of the Onyx Group based in the UAE.
In 2008, CHICO’s losses on raw materials alone came to US$ 24 million. This, was due to the steel market crash last year that left CHICO with a large stock of very expensive steel. The company says prices have now improved and the stocks are being disposed.
“Steel prices went up from about US$ 600 per MT to about US$ 1,200 at one point. So the company bought up stocks in case there was a shortage, but towards the end of the year, the prices crashed to about US$ 350 to US$ 400 per MT. So the company was left with a loss of about US$ 24 million. But this tends to be the nature of the industry. It is now recovering again,” said Mr Lokuwithana.
The new management plans to upgrade and expand production facilities to ride the reconstruction and development wave that is expected to start from 2010. With large scale government infrastructure projects that are due to be rolled out, and private sector development activity, demand for steel in Sri Lanka is expected to increase rapidly from next year.
“We are expecting demand for steel to increase by 10% - 12% in 2010 and then continue to increase for a few years. So we are planning to increase output from about 90,000 MT now, to about 250,000 MT over the next two and a half years. Most of this, 70%, will be TMT steel. We will also set up a cut-and-bar plant,” said Mr Lokuwithana.
TMT (Thermo Mechanically Treated) steel is a new generation high-strength steel that can be used in high-rise building construction. Currently the company only makes TOR steel, which is the older version. As a result, for high-rise contractions, Sri Lanka has to import TMT steel.
The planned cut-and-bar plant is also expected to benefit the construction industry.
“Now people have to buy the steel rods and then convert them to the building specifications. But a cut-and-bar plant can do this for them. So the construction industry will save on wastage and time,” said Mr Lokuwithana.
The company hopes to capture 60% of the domestic steel market over the next few years. |
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