ArcelorMittal Confident About Completing $23 Billion in Indian Projects

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Researched by Industrial Info Resources (Sugar Land, Texas)--L.N. Mittal, chief executive officer of global steel giant ArcelorMittal (NYSE:MT) (Luxembourg), has expressed optimism about completing the company's proposed $23 billion of integrated steel projects in India. Mittal indicated that the proactive steps taken by some state governments would assist the company in setting up its first fully owned steel mill in the country. However, he declined to comment on whether the first operational mill would be in Karnataka or Jharkhand.

In 2005, ArcelorMittal signed a memorandum of understanding with the state government of Jharkhand to set up a 12 million-ton-per-year integrated steel mill. A year later, a similar agreement was signed with the government of Orissa. Unfortunately, neither project has taken off because of issues involving land acquisition and long, drawn-out regulatory procedures.

The company secured a 500-acre mining license for iron ore and manganese at the Megahaturbura-Karmapada reserves near west Singbhum in Jharkhand. Frustrated by the state government's lack of action over the land-acquisition issue, which was inordinately delaying the project, Mittal threatened to abandon the project and look at investments in other states. Further discussions led to the company's shifting the project site from the state's Khumti and Gumla districts to Petawar, near Bokaro. The steel plant is now expected to be ready for operations by 2014. ArcelorMittal has been facing similar issues in the development of the proposed 12 million-ton-per-year steel mill in Orissa. According to sources, ArcelorMittal is now relocating the company's employees in Orissa to other project sites.

In the meantime, there has been progress on ArcelorMittal's proposed 6 million-ton-per-year project in Karnataka. The project investment is estimated to be in the range of $4.16 billion to $6.45 billion. Sources indicate that the Karnataka government and related agencies have extended full cooperation for the timely completion of the project. While a decision is expected shortly on the project site, there are indications that the integrated steel plant may be located at Torangal. The Karnataka government is also expediting processes to complete the formal agreement with ArcelorMittal by June this year.

In February, Mittal blamed the state governments for lacking the initiative to handle big-ticket projects. Mittal urged the state authorities to act quickly and capitalize on large capital investments. ArcelorMittal is aggressively looking at setting up manufacturing facilities in India. With steel demand in Europe expected to be sluggish in the medium and long terms, the company is keen to exploit the booming steel demand in emerging economies such as India, Brazil and China.

In its bid to cement its position in the region, ArcelorMittal hiked its stake in Uttam Galva Steels Limited (BSE:513216) (Mumbai) to 34.42%. In September 2009, the company bought a 5.6% strategic stake in Uttam Galva Steels, which provided ArcelorMittal its first steel mill in the country. Industry experts indicate that ArcelorMittal's stake in Uttam Galva Steels is a desperate attempt to create a presence in India. In the long run, there are indications that ArcelorMittal may completely buy out Uttam Galva Steels.

There are reports of ArcelorMittal's holding talks with Bhushan Steel and Power Limited (New Delhi) and public steelmaking enterprise Steel Authority of India Limited (BSE:500113) (SAIL) (New Delhi) to explore partnership opportunities. ArcelorMittal's decision to take the partnership route with SAIL comes close on the heels of its competitor POSCO (NYSE:PKX) (Pohang, South Korea) holding talks with SAIL to build a $2.71 billion steel plant. In a related development, Virbhadra Singh, the Indian minister for steel, has welcomed international steel companies to form joint venture partnerships with SAIL. The proposed alliances, including one with Kobe Steel Limited (TYO:5406) (Kobe, Japan), are expected to help India meet its growing steel demand. SAIL, which has a production capacity of 14 million tons per year, has plans to augment this to 60 million tons per year by 2020. The partnership is expected to help ease access to land belonging to SAIL and speed up regulatory approvals.

According to media reports, in an attempt to purchase a 26% strategic stake in Bhushan Steel and Power, representatives of ArcelorMittal met with top officials from the company in March. However, there has been no confirmation from Bhushan Steel and Power, which operates steel production facilities in Orissa, Punjab and West Bengal.

ArcelorMittal's thrust on new steel facilities comes at a time when global steel demand is forecast to rise 10% in 2010. For the three months ending March 31, 2010, ArcelorMittal recorded a profit of $679 million in comparison to a loss of $1.06 billion in the first quarter of 2009. The company's revenues grew 23% to $18.65 billion.

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