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Sri Lanka steel mill's Dubai owners in bid to up productivity, market share

(Created date: 28-Apr-2010)


Apr 28, 2010 (LBO) - The new Dubai-based owners of a Sri Lankan steel maker is investing 18 million US dollars to trim production costs and increase market share after taking over from its former Korean owners, officials said.

"Now we can go for more economical pricing to reduce spurious products in the market," Thomas Zachariah, business development manager at Onyx Group of United Arab Emirates (UAE) said.

"We will be saving one third of electricity in the new plant so we can bring down prices and eliminate them."

Danieli Morgardshammar group of Italy is supplying Onyx with machinery and technology.

Energy

The largest expense in the steel making business is energy, Andrea Diasparro, deputy product manager at Danieli Morgarsdshammar said.

"Energy costs can run up to 40 percent of total costs," Diasparro said.

Onyx group spent 38 million dollars spent to buy the steel mill from its former owners CHICO, a Korean firm. The Koreans bought the firm in a government privatization drive, when it was known as Ceylon Steel Corporation.

Onyx is spending a further 18 million dollars to upgrade the mill, Zachariah said.

The upgraded energy efficient new steel mill will mainly produce iron bars and sheets for the Sri Lankan housing market. Some products will be sold for infrastructure products such as bridges and roadways projects, Zachariah said.

Dubai based Onyx Group's has business interest in construction, steel and catering businesses, Zachariah said.

Market Share

He said the company's market share was 20 percent when it was acquired by Onyx group, but since then has recovered to 25 percent.

"This year by end December our market share will go up to 45 percent," Zachariah said.

"It's still running at a loss, after we invest in the company maybe in two to three years it will come into profitability."

Sri Lanka is expecting an upturn in construction and economic growth after a 30-year war with Tamil Tiger separatists ended in May 2009. May leisure firms are planning or beginning to build hotels following a pick up in tourist arrivals.

The new plant is to be operational by third quarter 2011 and will have a capacity to produce 250,000 tons per year.

The steel manufactured at the new facility will be 10 percent stronger than the competition, Zachariah said.

Trusted Brand

He the company decided to change the name back to Ceylon Steel Corporation as most Sri Lankan did not recognized CHICO, its name under Korean management.

Ceylon Steel Corporation and its product LANWA is still a well known brand in Sri Lanka, he said.

"We were able to change the name back to Ceylon Steel Corporation. When I go around Colombo and ask locals do you know a brand call CHICO they say don't, but when I say LANWA or (Ceylon) Steel Corporation they said yes, of course," Zachariah said.

"We got permission from the government last week."

If demand goes up in future the plant can be expanded, he said.

"A lot of steel bars are imported because the quality and quantity is not available," Zachariah said.

"In future more than 65 percent of the total demand will be covered by us. If the demand goes up we can upgrade this plant."

Of late 'local production' had become synonymous with protectionist driven high profits or 'rents' sought by a newly resurgent 'import substitution' lobby.

The Onyx group's productivity drive is coming at a time when Sri Lankan businessmen are seeking import duty protection to enrich themselves by blocking foreign competition and imposing higher prices on hapless domestic consumers.

High profits earned by protected building material producers hurt homeless Sri Lankans by making houses unnecessarily expensive.

Residents of northern Sri Lanka whose houses were devastated during a 30-year are now starting to re-build their homes.

There are separate state agencies in the island for standards and consumer protection.