Iron & Steel Co

# Template State Owned Enterprises- Company Overviews OCPA - Ministry of Industry & Minerals Note: All currency figures are in 000's of Iraqi Dinars unless otherwise noted. 1. General Information Company Name: State Company for Iron & Steel Sector Engineering Brief Description DRI, structural sections, spiral pipes and reinforcement bars. Company started sponge iron plant in 1964 and steel plant in 1978. Revenue in 2002 (Iraqi Dinars '000s) 29446769 # of Employees 4290 Annual Employee Salaries & Bonus 5730546 Headquarters Address Basrah, Khar Al Zubair (15km from port) 2. Company Highlights Massive looting to all facilities, which is ongoing. $20-30M USD in damages. May be up to one year before production could be restarted. Pipes are in particular demand from Oil Ministry, who has asked that this Company receive priority attention. The project has been allocated to Um Qasr plant. Reject pipes can be used for water and sewage. Pipes are critical to Oil Ministry's goal of multiplying oil output over next couple years. Estimated needs of 250K tons/year indefinitely. Would provide $25M USD in annual value added revenue to Company. Oil Ministry willing to purchase raw materials. Local production costs for pipes, including shipping, are $200/ton cheaper than imports (may be a result of subsidies, though). After removing subsidies, Company believes production should remain competitive. However, it may not be fully considering value of subsidies it historically received. Company received scrap metal free of charge, received almost $10M USD in import subsidies, and used 86mw of electricity in 2002 for virtually no cost. Also used 68 million m3 of natural gas at virtually no cost. Unit cost without these subsidies needs to be studied. Has new pipe plant worth $20M USD in storage in Germany. Will increase the Capacity from 80K tonsto 250K tons/year. Will cost $8M to transport and erect. Local advantages: (1) transporting coils is expensive (2) Importing of finished pipes would be logistically difficult, and (3) necessary coatings are made of local materials. Has $1M USD in a Jordanian account, currently frozen by Jordanian government. 11 page report by local Ministry official on strategy for developing this Company on file. Ministry of Oil has an MOU for steel coils to the value of $44M to be converted into pipes at this location. Part of the machinery is Spanish made and it may be possible to rehab through Spanish funding. Company has between $50M and $80M worth of raw materials (scrap metal and iron sponge pellets, with interested buyers. Allocated $500K USD for 2H 2003 operating budget and provided with zero mw off of grid. 3. Facilities Name city Damage % Power Needs Pipe Plant Basra spiral $22mil 3 lines build 1975 80% ($6M USD to repair) Pipe Plant German storage 0 Steel Structure Plant Basra Iron and steel $496M paid in 1979 $7M USD to repair 85mw Value of All Plant & Equipment Before War, and Initial Purchase Dates and Prices for Major Items Total investment was $550M USD not including real estate costs. 4. Products Product Name Unit Measurement Design Capacity Available Capacity 2002 Production 2002 Revenue Bars tons 240000 60000 Sections tons 160000 Spiral Pipes tons 100000 60000 4400 New Spiral Pipes Plant in Storage tons 250000 0 Description of Importance of Products to Other Iraqi Industries Ministry of Trade main bars and section Pipes for Ministry of Oil and Water Board 5. Customers Customer Name 2002 Revenue Subsidized (Y/N) Products Sold to Customer and Unit Pricing SC for Construction Materials (Min of Trade) Sections and bars at 400K ID/ton Iraqi Military Y Artillery pieces at 325K ID/ton Oil Ministry Spiral pipes at 450K ID/ton 6. Suppliers Supplier Name 2002 Purchases Subsidized (Y/N) Products Purchased and Unit Pricing Primier (Turkey) $3,214,250 USD Y, thru MOU Rolling mill rolls Unnamed Syrian Company $1,275,000 USD Y, thru Protocol 500 tons of graphite electrodes Red Found (Russia) 500 tons of graphite electrodes Sigri (Germany) Graphite from India Sorpa (Turkey) Didier (Germany) Viecher (Austria) Manesman (Germany) MCC (China) Mica from Turkey Mitsubishi - Japan Esab (Sweden) Silvana (Turkey) Current Payment Terms From Suppliers 25% advanced payment, 15% at time of opening the L/C. Remaining 60% when products are received. 7. Imports & Exports 2002 Import Markets for Raw Materials Extensive. See list of suppliers. Total cost of imports of $220 to $260 USD / ton. Potential Import Markets in Free Market 2002 Export Markets for Finished Products None. Potential Export Markets in Free Market Gulf area, especially the medium sections. 8. Competition Description of Competitive Situation Main competitors were imports brought in by SC for Importing Construction Materials (MOT). Market Share Description Company was covering no more than 5% of local demand. But at full capacity prodution can cover 30%. 9. Summary of War Damage & Looting of Property & Equipment Description of Damage $7M USD of looting damage to control equipment and electrical work at steel structure plant. Separately, $6M USD damage to pipes plant. Power generators also damaged. Current Operating Status Not operational. Will take 5 months to one year to repair damage and begin operations, maybe up to 1 year. Will take 9 months to erect and start new pipe plant. Immediate Property & Equipment Needs To Restart Operations Must repair most damage described above. Total Cost to Return to Pre-War Condition $20M USD for both factories, and growing. 10. Inventory Status Raw Material Status Iron ore and Steel scrub are available for 1year production. 1M to 1.2M tons of scrap steel at facilities (which it received free of charge). An additional 500,000 tons are scattered around the country. 500K tons of iron ore pellets worth $27M USD. $1M worth of bricks and electrodes. Months of Material Supplies & Production Rate Scrap metal and iron pellets would last 3 to 5 years under normal production rates. Immediate Raw Material Needs Immediate need for import of graphite electrodes, ferro alloys, refractories & spares. Finished Products Supply (Units and Value) Company could sell scrap metal and iron sponge pellets for over $50 million, maybe as much as $80M. Also has $1.5M USD in other finished goods. 11. Fuel & Electricity Needs Description of Fuel Needs 5 mcf of natural gas Description of Electricity Needs For two furnaces, need 85 mw 12. Other Needs to Restart Working Capital Needs Rebuilding cost is more relevant than working capital Security Needs Yes, looting is still a major issue as of 7/12/02 Other Needs 13. Strengths, Weaknesses, Opportunities & Threats Description of Strengths Availability of scrap metal, cheap labor and energy, availability of complete infrastructure and harbor facilities for import & export, good technical staff. Description of Weaknesses Old equipment and production technology make operating costs uncompetitive. Description of Opportunities To upgrade the production capacity with modern equipment and add new longitudinal welded pipeline to serve oil and gas industry (8 - 24") 200k to 250k meter /year. Description of Threats Looting and ongoing security threats. 14. Long Term Strategy Description of Strategy Need to erect new pipes factory and upgrade steel structure factory. Total renovation on property and equipment would cost $150M USD. This would allow output to increase to 600K tons/year (over $200M USD in annual revenue). See reports on file for full description of strategy. Potential New Products ARW pipes (similar to spiral pipes). Longitudinaly welded pipes. Potential Partnership Opportunities No partnerships identified by mgmt, but willing to partner with manufacturing and/or marketing companies. 15. Revenue and Costs Overview Description of How Pricing Was Set Cost of production + 30% profit. In free market, Company can sell merchant steel at $275 USD per ton, bare pipes at $600, anand coated 3 layer P.E. at $700. Description of Production Costs Labour & raw materials (20%), Utility (3%), depreciation (0.5%), Rental interest (1%), other expenses (0.25%) Potential for Profitability in Free Market Depends on ability to invest in modernizing production equipment.