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India is where the action is in steel, write Manu Kaushik and Ritwik Mukherjee.

twitter-logoManu Kaushik and twitter-logoRitwik Mukherjee         Print Edition: Sept 9, 2007

As is the case with many commodities and product categories in India, per capita consumption of steel, too, is woefully low—it stands at just 29 kg as against 400 kg in the US and a world average of 140 kg. If India has to become a developed nation— which is the government’s avowed objective by 2020—steel will have a major role to play. After all, it finds its way into such key industrial sectors as construction, housing, transportation, engineering, power, petrochemicals and fertilisers.

China continues to dominate as the world’s biggest producer and user of steel, by far. Back home, the industry, comprising majors like the Steel Authority of India Ltd (SAIL), Tata Steel, Essar Steel and the Jindal Group, is gearing up to meet the increased future demand. And last fortnight, two global majors made two significant announcements that indicate their keenness to participate in the India growth story. Even as uncertainty persists around South Korean steel giant POSCO’s much-delayed Rs 49,000 crore, 12 million tonnes per annum project in Orissa, the world’s fourth-largest steel producer has signed an alliance with the state-owned SAIL.

On another front, Baosteel of China, the world’s sixth-largest steel maker, has quietly entered into a joint venture with a domestic steel maker. Meanwhile, the Indian majors continue to look overseas for assets and, at the time of writing, Sajjan Jindal’s JSW Steel was awaiting board approval to announce a billion dollar-plus acquisition in the US.

Clearly, after China, India is where the action is in steel—for every producer worth his furnace, right from L.N. Mittal’s Arcelor Mittal, the world’s largest steel maker, to a local producer like the Rs 538-crore VISA Steel (the joint venture partner for Baosteel). But, to start with, why is POSCO allying with SAIL? The strategic partnership is for cooperation in a wide range of businesses and commercial areas. Besides exchanging engineers, technicians and other professionals, the two companies will share information in the development of mines.

They will also use each other’s marketing and warehousing networks and coordinate the procurement of coking coal, nickel and ferro-alloys. According to S.K. Roongta, Chairman, SAIL: “Both SAIL and POSCO have been extending support and cooperation to each other in different fields. The alliance between the two giants is a step towards synergising the strengths in a rapidly consolidating global steel industry.”

SAIL, which produces steel using blast furnace technology, will use the technical expertise of POSCO, which is a global leader in this technology. In return, the Korean giant will get access to SAIL’s all-India network, and its dedicated port at Haldia. It’s also been said that knowledge of the Indian steel market and could be looking at acquisition of plants in India via this alliance. POSCO India’s $12-billion steel project in Orissa is in the doldrums thanks to controversies surrounding the reservation of iron ore and land acquisition.

The company has rescheduled the start date to December 2007 from April 2007 earlier. POSCO had been allotted 4,004 acres at Paradip, but has not been able to take possession of the land. The project is expected to employ about 13,000 people directly, and to create jobs for 35,000 more in Orissa.

Baosteel is unlikely to run into such mega-sized roadblocks. And that’s simply because it’s starting small, with a proposed investment of Rs 260 crore. Says Xu Le Jiang, Chairman, Baosteel Group: “It is a great start for cooperation between Baosteel and the Indian partner and we hope the JV will go a long way in mutually benefitting us.”

Baosteel has teamed up with the Kolkata-based VISA Steel, an emerging integrated special and stainless steel player, to set up a greenfield facility in Orissa. The 100,000 TPA Ferro Chrome plant in Orissa will supply a key raw material for stainless steel sector. Adds Vishambhar Saran, Chairman, VISA Group: “There can be a further association with Baosteel in future; the present plan will materialise by mid-2009.” The JV has been christened VISA-Bao, with the Chinese major holding 35 per cent of the equity and the VISA Group the rest.

Baosteel, whose current steel making capacity is 24 million tonnes, had earlier planned to add another 10 MT in China. The Chinese steel major has put those plans on the backburner and is now looking at India as the next port of call, industry sources say. That shouldn’t surprise anyone, anymore.

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