Tata Steel's $3.2 Billion Project and BHP/POSCO Concept Focus Steel and Iron Plans on India's Orissa State

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Following hot on the heels of the news that BHP Billiton (NYSE:BHP) (Melbourne, Australia) has been holding preliminary discussions with officials of the state government of Orissa in India on expansion of its global iron ore business into that region, a proposal from Tata Steel (BOMBAY:TATA) (Bombay, India) to set up a six million ton per annum (tpa) integrated steel plant, at Duburri in the Jajpur district of Orissa, appears to be on its way with the expected approval of the Industrial and Investment Corporation of Orissa.

The BHP discussions have been held jointly with Korea's POSCO (KSE:POSCO) (Seoul, Korea) and initial concepts cover the construction of a steel plant and port facility and the development of an iron ore mine. If these concepts are developed to the next stage BHP's interest would be limited to the supply of steel-making raw materials and associated materials handling facilities and infrastructure to the steel industry of Orissa. Although at the preliminary stage the steel and iron project has elicited considerable support from local interests in Orissa.

The scope investment on the $3.2 billion Tata project includes mines development, raw material processing, a 140 MW captive power generation, production of blast furnace steel and a steel rolling mill for final output.

In its surge to achieve a steel production capacity of 15 million tpa by 2010, Tata has planned to add foreign acquisitions to supplement the new Orissa capacity. In mid-August, it made the $486 million acquisition of NatSteel of Singapore that has an installed capacity of two million tap, with plants in China, Thailand, Vietnam, Philippines, and Australia. Tata's ongoing enhancement and expansion plans at the Jamshedur plant bring that site's output up to 7.5 million tpa from 4.5 million tpa.

Tata reports that it has sought allotment of 2,500 acres of land at Duburri. "Interestingly", the company announcement says," South Korean steel major POSCO, from which a high level team recently visited Orissa to discuss the setting up of a three million tpa steel plant, is also eyeing the same patch of land to put up its venture." Is "interestingly" a mating call, or a patronizing put down? It certainly is not a knee-jerk hostile.

Tata Steel proposes to build the six million ton production capacity in a single phase and has estimated its iron ore requirement for the new project at 500 million tons, extending over a period of 50 years.

To supply the iron ore needs, the company aims to reclaim mining leases over deposits in Sundargarh and Keonjhar, which the government withdrew after Tata failed to implement the ten million tpa Gopaljur steel project, for which it had spent about $35 million in acquiring a 4,000 hectare site.

Looking at the global iron ore picture, Roberto Castello Branco, Investor Relations Director for Brazil's world leader, CVRD (NYSE:RIO) (Rio de Janeiro, Brazil), told market analysts that global demand is expected to grow by 30 million tons to 605 million tpa in 2005, in spite of China's slowdown and rising oil prices, reports BNamericas. China is likely to account for 33.9% of total demand in 2005 using 205 million tons compared to the 180 million tons forecast for 2004. With the global iron ore market estimated at 575 million tons for 2004, China had imported 98 million tons in the first half of the year. In the same period, CVRD produced 98 million tons of ore representing an 8.3% increase year-on-year.