Why POSCO is Bullish on Its Indian Steel Investments

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Cold-rolled steel

Analysts say South Korean steel giant POSCO is clearly trying to leverage its position as the world’s No.1 automotive steel plate producer in India, where a growing economy means more purchasing power, which in turn means the purchase of more automobiles by Indians.

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In January, POSCO was ranked 36th on the 2015 Global 100 Most Sustainable Corporations in the World Index announced by the World Economic Forum (WEF). The ranking is the highest among Korean companies and POSCO was the only steel company in the world on the list.

In 2012, POSCO ranked 30th on the list but didn’t even make the list in 2013 or ’14. It was relisted at 36th on the index this year, a little after POSCO Chairman Kwon Oh-Joon took office.

The company has taken some big steps since its establishment in 1968 as South Korea’s first steelmaker. Today, it has grown to be one of the most competitive steel companies in the world. Besides its 2 large steel mills in Korea, POSCO has over 60 subsidiaries, focusing on 4 main sectors – steel manufacturing, construction, energy  and engineering. The steelmaker also has overseas affiliates in China, Japan, the US, India, and Vietnam. About 45% of its products are sold in global markets around Southeast Asia, Japan and China with the rest taken in domestically.

It is only lately, however, that POSCO has been aggressively pursuing its global expansion plan, and India plays an important destination on that map.

At an investors’ meeting in May, POSCO announced a new strategy with a focus on the core steel business, mega growth, and management restructuring for efficiency.

There have been reports recently that POSCO will start building a steel plant in Chongqing, China, soon. Chinese Vice Premier Wang Yang was expected to approve the construction of the project. A Memorandum of Understanding between POSCO and Chongqing Iron & Steel Group had been signed 4 years ago to set up the steel mill with an annual production capacity of 3 million tons.

Like POSCO’s mammoth steel plant in India’s eastern province of Odisha, however, this project has been delayed by over a decade, yet POSCO has not given up hope.

On January 20 the POSCO Chairman met with Indian Prime Minister Narendra Modi in New Delhi. During the meeting, he asked Modi to help the steelmaker push ahead with the project.

Some media reports here in India seem to suggest that the new policy on mining announced recently by the Indian government could prove to be a fresh hurdle in the path of this project. The policy calls for an open bidding system for all mines containing iron ore. The move might invalidate POSCO’s previous agreements with the Orissa State government, which granted the Korean company rights to develop iron ore mines. POSCO management is said to be studying the developments on this front quite closely.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

 

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