Is Sanjeev Gupta the next LN Mittal of the global steel industry?

Ironically, Gupta is expanding his steel business even as Mittal has consolidated it. ArcelorMittal, which in 2007 had a capacity of 130 million tonne, produced a little over 97 million tonne in 2019.

Though the World Steel Association doesn't list Liberty Steel Group, Gupta claims that the company has a capacity of 18 million tonne a year, which would make it the 16th largest steelmaker in the world. In other words, Liberty Steel Group will be larger than JSW Steel and Steel Authority of India (SAIL).

But there is a crucial difference in the way Gupta envisions his steel empire. For an industry that probably has the largest carbon footprint for any manufacturing sector, the 49-year-old Gupta leads the advocacy in producing green steel. The billionaire businessman has even trademarked the concept and calls it, GREENSTEEL.

"Our industries - metals and energy - have been and will continue to be critical for the evolution of mankind. The distress in these sectors is an opportunity for us. We are turning headwinds into tailwinds. We have turned from primary to green steel (using renewable energy to melt scrap into steel)," he had told Moneycontrol in an earlier interview.

While it makes for great headlines and optics, industry executives point out that Gupta's stress on environment also makes for sound business sense.

Sanjeev Gupta

Manufacturing green steel Gupta, who was born in Punjab, was 13 when his industrialist father enrolled him at a boarding school in Kent. He founded Liberty House in 1992.

But he first came under the spotlight much later in 2013, when he bought a loss-making steel facility in Wales. He turned around the operations and saved almost 200 jobs. The British media hailed him as the ‘white knight'.

The big moment came in 2017, when Gupta bought multiple units of Tata Steel, which was struggling to turn around its plants in the UK.  When Prince Charles inaugurated the resumption of the facility later, he asked Gupta, ‘What are you going to do differently? Can you do it when Tatas couldn’t do it?'

It's a question many have asked, as Gupta not only turned around the units that were making losses, but also started making profits. In an interaction with Moneycontrol in late June, Gupta recounts with a chuckle, "Many did call me crazy, when I first talked about green steel and recycling."

A senior industry executive, who has worked across the globe, gives a peek into Gupta's strategy.

"To make one tonne of steel, one needs four tonne of material, including iron ore and coal. All these involve intense mining. And then the process of steelmaking through the blast furnace route itself has a huge carbon footprint," the steel veteran, who requested not to be quoted, said.

Despite the pollution it creates, steel has a redeeming factor. "It has a unique quality, compared to other metals. It can be recycled much better than other metals and has a longer life cycle. So instead of using iron ore, one can use scrap to convert it into steel," the executive added.

Gupta is precisely working on that.

"UK had led the word in industrialisation. Though over the last few decades steel industry has been on a downhill, the country has accumulated over a billion tonne of steel scrap. In fact, UK exports 8 million tonne of scarp, but imports 7 million tonne of steel," said Gupta, who wants to build a steel empire on this scrap.

To follow the strategy, the entrepreneur wants to set up electric arc furnaces, instead of traditional favourite blast furnaces, to make steel. Arc furnaces convert scrap into steel. Ironically, his showcase facility is coming up in Newport, which is close to Tata Steel's Port Talbot plant that Gupta nearly bought, and has again reiterated his interest.

The Newport plant will have a 2 million tonne electric arc furnace that will use local scrap to make steel. Not just that, energy - which is expensive in the UK - will come from a power plant next door. The power plant "is undergoing the world first conversion that will see it use end-of-life waste that currently go to landfills as its raw material, instead of coal.”

This is music for the ears of policymakers in Europe, where countries are looking to reduce emissions, and have also imposed penalties on those with higher than permissible carbon footprint.

But even as Gupta makes the right sounds and seemingly moves from one acquisition to the other, questions have also been raised on his growing empire.

Sanjeev Gupta, Executive Chairman of Liberty House Group, listens to the speaker at the completion of a 330 million pound deal to buy Britain's last remaining aluminium smelter in Fort William Lochaber Scotland

Calls for transparency Gupta's $20 billion Alliance is closely held and doesn't share financial information. A Financial Times report earlier this year also raised questions on the Group's funding, especially with an aluminium plant in Dunkirk, France, breaching loan terms.

There were also concerns of related-party transactions involving Wyelands Bank, owned by the Alliance. The Group had earlier this year closed its other bank, Commonwealth Trade Bank, within a year of acquiring it.

Responding to the criticism, the Alliance last year had promised to release consolidated accounts in early 2020. Later, group companies changed their accounting years to end in June, from March. But in April, the change was taken back.

While these may not instil confidence, sources close to Gupta said the entrepreneur wants to list his steel business, something that will automatically allow closer scrutiny of the books.

Expanding despite COVID-19 The COVID-19 disruption has forced Gupta to pause; literally, for a person who takes 300 flights a year traveling around the world in his private jet.

"We don't want to dump steel in the market. We will keep adjusting our production according to market demand. We have also set a target of improving efficiencies by 30 percent," Gupta said.

This has meant that a significant number of the Alliance's over 30,000 employees may also lose jobs.

But the setback doesn't mean that Gupta has lost sight of his expansion plan. The Rotherham unit, for instance, will double its capacity in the next one year. In Australia, Gupta wants to turn around the steel facility and set up an electric arc furnace.

He has similar plans for India, where Liberty finally got a presence through its acquisition of Adhunik Metaliks. "In India, we want to use lower carbon technologies such as hydrogen and DRI (directly reduced iron)," Gupta said.

The expansion pace though will come down. "The COVID-19 situation may last for anywhere between a year to two years. We are planning our budgets accordingly," he stated.

The pause apart, it's clear that the entrepreneur is raring to get back to the skies.