India's Tata Steel to Commence Iron Ore Production in South Africa by 2010

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Researched by Industrial Info Resources (Sugar Land, Texas)--Tata Steel Limited (BSE:500470) (Mumbai), the world's sixth-largest steel producing company, will begin production at the 2 million-ton-per-year Sedibeng mine in South Africa by 2010. Tata Steel holds a controlling stake in the iron ore mine and also operates a fabricated steel unit in the economically distressed area. The output of the mine will be shared with a few unnamed partners of Tata Steel, and the ore will be exported to Corus (London, United Kingdom), Tata Steel's European subsidiary. The Sedibeng mine has been estimated to contain iron ore reserves of about 50 million tons.

Tata Steel has mining interests in Canada as well. The Canadian iron ore mines have been estimated to have reserves of about 100 million tons, from which the company expects to mine about 4 million tons next year. Tata Steel is also exploring coal blocks in Mozambique, where it owns a 35% stake in a coal block at the Benga deposits near Tete. Still in the exploratory stage, the coal block has been estimated to have reserves of about 2.1 billion tons. Tata Steel hopes to mine about 5 million to 6 million tons of coal in Mozambique from 2011. Australian mining company Riversdale Mining Limited (ASX:RIV) (Sydney) owns a stake of 65% in the coal block. According to the Managing Director of Tata Steel, Balasubramanian Muthuraman, the company's strategy is to initially focus on small mines that require low investment and later shift the focus to large mines that would require little or no investment at all.

Corus has undertaken several cost-cutting measures such as restructuring operations and reducing both executive bonuses and employee numbers in the face of the prevailing global economic crisis. By doing so, Corus successfully reduced costs by $650 million to $700 million in the past financial year, 2008-09. Tata Steel expects Corus to save up to $1 billion this fiscal year. However, the cost-saving measures have taken a toll on the capacity utilization of the unit, which is expected to run at 67% this fiscal year, significantly lower than the 75% capacity utilization seen in 2008-09. Muthuraman expects the capacity utilization to drop to as low as 54-65% during the first two quarters of the current financial year.

Muthuraman announced that Tata Steel's manufacturing units in India would increase their capacities by about 20% to reach 1.5 million tons per year in the current fiscal year. In his opinion, the adverse effects of the global economic crisis have not hit India as hard as many other countries, and Tata Steel expects domestic steel demand to grow by 4-5%.

The global steel production scenario has been strongly affected by the economic crisis. Financial consultants such as JP Morgan (New York, New York) expect steel prices to fall further and steel demand to plunge by an additional 20% or so this year. In November 2008, the world's largest steel producer ArcelorMittal (NYSE:MT) (Luxembourg) announced that it proposed to reduce production by 35% because of the declining demand for steel, mainly in the automobile and construction sectors. More recently, the company's Canadian unit cut production by 45% and reduced manpower by 9,000 people.

The total steel production of Germany, one of the largest steel producing nations in Europe and the largest economy of the continent, has fallen by about 40% during the first quarter of 2009 in comparison to the same period last year. The country's economy has been in recession since 2008, and steel production rates have dropped to levels not seen since the 1950s. ThyssenKrupp AG (FRA:TKA) (Dusseldorf, Germany), Germany's largest steel-making company, recently announced the launch of a $670 million restructuring program that would involve layoffs.

According to the World Steel Association (Brussels, Belgium), global steel production in 2008 was 1.2% lower than in 2007. Crude steel production worldwide in 2008 was reported to be 1.33 billion tons. While production figures fell in almost all the steel-producing nations such as those in the European Union, the Americas and the Commonwealth of Independent States (CIS), Asian nations such as China and the Middle Eastern states reported an increase in steel production. Worldwide, production figures have been declining since September 2008, with December 2008 recording a fall of 24.3% in comparison to the same period of 2007. While Asia reported an overall increase of 1.9% from 2007, Japan reported a fall of 1.2% in steel production. The European Union reported a fall of 5.3%, and North America reported a decline of 5.5%. The CIS showed a decline of 8.1%, with Russia and Ukraine reporting declines of 5.4% and 13.1%, respectively, on a year-on-year basis.

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