Top 4 Reasons To Stay Out Of India (If You're a Steel Producer)

Projects in India, especially metal projects (foreign steel mills, etc.), invariably face the following 4 hurdles:

  • Land acquisition
  • Delays in getting the required environmental clearances
  • Uncertainty over raw material supply (in this case, iron ore)
  • High cost of finance

Case in point: compare 2013 to 2002. It was the year India’s steel industry was on the cusp of a new era. Over 200 MoUs were signed that year between the government and steel companies like ArcelorMittal, Tata Steel, JSW Steel, among others. After all these years, barely a few projects have materialized, while the rest have either been cancelled or postponed. (Read the details of the recent ArcelorMittal/POSCO pullouts.)

All this is reflected in the growth rate of the steel sector.

FREE Download: The latest Monthly MMI® Report – covering the Steel/Iron Ore markets.

From 60 million tons in 2007-08, steel production capacity in India increased to just 91 million tons in 2012-13 – the slowest pace in five years.

True, some blame lies with the global financial crises that have erupted since 2002. A report in the Business Standard said there was some consensus in the industry that the India story was a lot better than the bigger global picture. Globally, it was a case of oversupply.

Moreover, the report said Europe was “still in a mess, [and] Africa and West Asia were grappling with political issues, though there are early signs of recovery in the US.” In contrast, Indian steel producers believed that the gloom would not last forever, added the report.

Also true, but the Indian government, in addition to getting its act together, also needs to initiate some long-term measures to check the slide of the Indian rupee against the US dollar.

For two weeks or so, the decline of the rupee’s value has only worsened the situation, making imports costlier. Which is continued bad news for metals producers, since a bulk of their coking coal demand is met through imports.

FREE Download: The latest Monthly MMI® Report – covering the Steel/Iron Ore markets.

Read more Indian perspectives from Sohrab Darabshaw.

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