India steel in focus as Arcelor, Posco cancel projects
Lakshmi Mittal confirmed that ArcelorMittal had ditched a plan to build a major steel plant in the eastern state of Orissa, blaming a protracted dispute over land. The announcement by the world's largest steelmaker by sales came just days after Posco of South Korea said it was scrapping a USD 5.3bn steel mill project for similar reasons.
July 22, 2013 / 15:55 IST
It had been on life support for years, but the death notice still attracted plenty of attention as Indian tycoon Lakshmi Mittal confirmed that ArcelorMittal had ditched a plan to build a major steel plant in the eastern state of Orissa, blaming a protracted dispute over land.
The announcement by the world's largest steelmaker by sales came just days after Posco of South Korea said it was scrapping a USD 5.3bn steel mill project for similar reasons, placing renewed focus on the limited progress India's government has made in fulfilling repeated pledges to help industrial groups free up mega projects ensnared in red tape. The twin cancellations also raise fresh doubts about Indian steel more generally, as a sector until recently considered a bright spot in a global industry blighted by overcapacity and falling prices comes to grips with a new era of strained finances and fast-falling domestic demand. The decisions to scrap the plants came as no surprise to industry observers: both had long been on hold, and the companies involved have alternative projects on which to focus - in Posco's case, notably, a planned USD12bn plant that will eventually become India's largest foreign direct investment project. Even so, they did little to shift the perception that Asia's third-largest economy is a tough place to build large-scale facilities - and that this problem is getting worse. The finger-pointing in ArcelorMittal's case is illustrative, as the steelmaker blamed its inability to secure land for the cancellation, while India's central government cited inaction from its counterpart at the state level and the administration in Orissa countered by accusing the company of never really being serious in the first place. For Indian steelmakers such land problems are commonplace, as are concerns over onerous environmental regulations, labour disputes and access to reliable iron ore supplies. Even those plans that have made progress, such as Posco's mega-project and another huge new facility in Orissa being put up by Tata Steel, tend to be heavily delayed. Until as recently as late last year, complaints about such government inaction were heard frequently from the country's steel barons, who often expressed concern that difficulties building new greenfield plants would ultimately stop their industry meeting what most expected to be dramatic increases in steel use. Today, however, they have new worries. "Indian steel is passing through one of the most difficult times that it has ever faced," says Sajjan Jindal, the head of JSW Steel, the country's second-largest private steelmaker by output. "Demand is down a lot. So while policy paralysis continues, and new greenfield projects are either not happening or happening very slowly, we are now just as worried about demand. Both sides are becoming very complicated at the moment." India's economic growth fell to a decade-low of 5 per cent during the last financial year, with industrial expansion slowing even more sharply. Construction projects are down, while struggling industries such as carmaking have also been consuming much less steel. The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.The result is that while global companies like ArcelorMittal and Posco have not given up on India, the need to build new plants is momentarily less of a priority. Also read: 'ArcelorMittal, Posco pullout to hit investors sentiment'In the longer term, India is still seen as a good bet, not least as the rest of the global steel industry struggles to recover from the twin blows of a collapse in European demand and chronic oversupply from Chinese steelmakers suffering against the backdrop of a slowing domestic economy. India is especially unusual for its low per capita level of steel use, which data from World Steel, a global industry trade body, suggest is still barely a tenth of that consumed in China."India is going to be a big opportunity for global steel players for many years to come," says Anjani Agrawal, head of mining at consultants Ernst & Young in India. "Demand will grow very strongly in the long run, even if it isn't at the moment. I don't think anyone disputes this." In the nearer term, however, there are more pressing concerns. "If you think what we are seeing now is just a blip, then at some point we will see demand overtaking supply, and we'll need to worry about more plants," says Jatin Kotian, a steel analyst at broker Kotak in Mumbai. "But one really has to be an optimist to believe this at the moment." Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
