Posco and Tata Commit $18 Billion to Indian Steel Projects - Mittal to Come

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). In the same week at the end of June that South Korean steelmaker Posco (NYSE:PKX ) (Pohan, South Korea) signed a $12 billion project memorandum of understanding (MoU) with Orissa state government in India, Tata Steel announced a $5.3 billion investment plan, and the world's largest steelmaker, L.N. Mittal Steel NV (NYSE:MT ) (Rotterdam, Netherlands & London, UK), was reported to be studying possible projects in India.

India will continue to attract steelmakers' interest, even at a time when the global market for steel is experiencing something of a speed wobble, as China's production capacity increases its ability to service the home market and the vigorous margin increases of the past three years show signs of flattening around the world. India has a domestic per capita of 30 kilograms per annum, compared to the 180 kilograms per capita of China. India also has the world's third largest deposits of coal and iron ore.

By 2020, steel consumption in India is expected to more than triple, to 100 million tons. Over the past decade demand has grown by 5% to 6% per annum. Steel demand is rising, as infrastructure investment increases and demand for housing and durables such as cars and consumer goods soars, reports the Economic Times.

The skills available and an 'affordable' labor market structure are welcoming signs to project investors. The Posco investment is the largest ever foreign direct investment (FDI) made into the country. This may signal a turn in the FDI tide. Over ten months, up to March 2005, India received only $4 billion in FDI, compared to $50 billion in FDI to China during the same period.

The project will be developed in four investment tranches leading to a twelve million ton capacity at the Paradip steel plant in 2016. Under the MoU, a sum of $3 billion will be invested annually between 2007 and 2010 to construct a three million tpa plant, which will start production in 2010. Subsequently, three million tons of production capacity will be added every two years in order to reach the completion figure in 2016.

Included in the scope of the project is the construction of a thirty million tpa iron ore mine, a hot-rolled coil mill, and a seaport. It is estimated that the total project activity will create 48,000 jobs.

One element of the discussion between Posco and Orissa has yet to be clarified. Posco wants to swap exports of low grade iron ore for imports of high grade ore. Posco is continuing in talks with BHP Billiton (NYSE:BHP ) (Melbourne, Australia), the major Australian-based iron ore miner.

Addressing the subject of Indian iron ore exports, the managing director of Tata Steel, B. Muthuraman, said that it had to be seen in the right perspective. The country has about 20 billion tons of iron ore reserves. But in view of the size of the population and higher per capita steel consumption in future, India had the potential to utilize the entire reserves. Exports could mean that there might be a domestic shortfall in the long run, he said.

Muthuraman said that Tata Steel's plans included expansion at the Jamshedpur plant and the building of new capacities in Orissa and Chhattisgarh. The company is also eyeing acquisitions abroad, with plans to acquire steel companies in China and South East Asia. "Discussions are on with some of the companies, and a final decision will be taken soon," he said. By 2008, Jamshedpur will have increased capacity from five million tpa to seven million tpa. Orders for machinery for this expansion are due to be placed in July.

The company is targeting to increase its manufacturing capacity to 15 million tpa in the next five years. In Orissa, a six million tpa plant is being planned in two stages. The first, a three-million ton phase, would be completed by 2009, and the second phase in 2012. Tata Steel will apply for taking mines on lease, having previously acquired land in Orissa and Chhatisgarh. For related news item see - August 30, 2004 - 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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