Foreign Steel Firms Tie up with Locals to Realize Steel Projects in India

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Ferrous Metals, Global Trade

The west may look on in envy at developing countries rapid growth and industrialization. It seems a new steel plant or car production plant goes up every month in China or India.  Although rapid industrialization is certainly happening it is not as smooth running as the numbers suggest.

Take Pohang Iron & Steel (POSCO) of Korea for example. After struggling to acquire land for a 12 million ton steel plant in Orissa for five years, the producer has all but admitted they cannot go it alone and announced they are teaming up with state owned Steel Authority of India (SAIL) in a joint venture at Bakoro in Jharkhand north of Kolkata. SAIL has already developed plans for a 12 million ton steel plant at the 36,000 acre greenfield site based on iron ore supplies from their nearby Chiria iron ore mines. Chiria is said by the Indian Business Standard to be Asia’s largest iron ore reserve containing in excess of two billion tons. The tie up between SAIL and Posco highlights the respective challenges domestic steel producers and foreign firms face. SAIL is ideally placed for securing land and gaining rights to iron ore reserves, being state owned they have both the local and national government’s ear when it comes to land acquisition, mining rights and environmental approvals. Their Bakoro site is 32,000 acres, probably three times what they actually need. Posco, along with ArcelorMittal, JFE, Sumitomo and others have found the land acquisition process tortuous and to date none of them have managed a major greenfield development on their own. What Posco can bring to the arrangement though is world class technology, corporate planning skills, project management and established global markets for exports. In Posco’s case, of these the technology is arguably the most valuable. Working jointly with Siemens VAI the pair have developed what they claim is a world beating steel production process called Finex which replaces the 100 year old traditional blast furnace route with a process that produces a fraction of the emissions from traditional methods and can use low cost thermal coal in place of coking coal.  Siemens claims that the Finex process ability to use low-cost raw materials means that both capital investment and production costs are much lower than the blast furnace route. A 1.5-million-ton-per-year Finex plant can produce hot metal more cost effectively than a modern three-million-ton-per-year blast furnace. When oxygen and power plants are included in the comparison, the capital and operating costs of a Finex plant will be approximately 20% and 15% lower, respectively, than the blast furnace route. Indian production costs are already some of the lowest in the world due to low iron ore, coal and labor costs, married to Posco-Siemens Finex technology the group could see themselves in court at the WTO having to explain how they can profitably sell steel 25% below their local competition in overseas markets.

In addition, Posco states they intend to use their continuous casting Mini Flat Mill rolling technology which is cheaper than the conventional hot strip mill by skipping slab reheating and rolling directly from direct casting.

Other steel producers are adopting the same partnership approach. Indian JSW Steel is collaborating with JFE Steel Corporation, the world’s sixth biggest and Japan’s second largest steel maker, for a manufacturing and shareholding agreement JSW’s sales director is reported to have said, “JSW Steel is the only steel company to bag the entire land, mines and special economic zone status, for a 10-million ton entirely new project in West Bengal. Apparently JSW is in the process of scaling up its Bellary steel project to 10 million tons in anticipation of the deal.

Underlying the criticality of government involvement, even domestic Tata is having to team up with NMDC the public sector miner of iron ore and coking coal to jointly develop a 10 million ton steel plant near Chhattisgarth having failed to gain agreement on a land acquisition in Orissa.

At stake for all these producers is a part of India’s rapidly expanding steel demand. The steel ministry’s target of achieving a production capacity of 115 million tons of production capacity in the country by 2012, has recently been brought down from the earlier 124 million ton target. The current capacity is about half of this.

–Stuart Burns

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