Mumbai, Jan. 1 It was a busy, action-packed year for the steel sector. While JSW Steel, Essar Steel and Rashtriya Ispat Nigam increased capacity, the industry was also forced into quarterly pricing for coal and iron ore supply.
Both JSW and Essar will complete their expansion projects in Vijayanagar and Hazira in the first quarter of 2011. While the former will increase capacity to 10 million tonnes from 6.8 mt, Essar will double production to 10 mt. Rashtriya Ispat Nigam is also likely to achieve its goal of hiking capacity from 2.9 mt to 6.3 mtpa by 2011.
In more ways than one, the year belonged to JSW which offered a stake to JFE of Japan to lower the debt burden in its books and just a fortnight ago, snapped up Ispat Steel for Rs 2,157 crore. The entire deal was finalised in a record eight days, according to Mr Sajjan Jindal, Managing Director.
In April, JSW acquired a controlling stake in South African Coal Mining Holdings for about Rs 51 crore, and followed that up by buying 123 mt coking coal assets in West Virginia for Rs 450 crore. In October, JSW bought a controlling stake in Canada's CIC Energy, a coal miner, for Rs 1,886 crore.
Expansion plans
With crude steel production capacity of 72.96 million tonnes per annum, India emerged the world's fourth largest producer in 2010, up from eighth position in 2003. It is expected to become the second largest global producer of crude steel by 2015. India also maintained its lead position as the world's largest producer of direct reduced iron (DRI) or sponge iron.
Crude steel production grew at 8.4 per cent annually from 46.46 million tonnes in 2005 to 64.88 mt in 2010, according to Steel Ministry data. Finished steel output stood at 59.69 mt in 2010, against 46.57 mt in 2006 — an average annual growth of 6.5 per cent.
Despite hiccups in land availability and raw material tie-ups, steel companies signed 222 MoUs with various State Governments for creating 276 million tonnes of capacity at an investment of Rs 870,640 crore by 2020.
NMDC signed an MoU with the Chhattisgarh Government to set up a greenfield integrated steel plant of three mtpa at an investment of Rs 15,525 crore. It also plans a joint venture with Russia's third largest steelmaker, Severstal, which would invest about Rs 4,500 crore. Major investments are planned in Orissa, Jharkhand, Chhattisgarh and West Bengal.
Greenfield plans
JSW Steel was among the few companies that managed to kickstart its greenfield project. Its arm, JSW Bengal Steel, acquired land for its plant at Salboni and has targeted financial closure for the first phase of three mtpa by this fiscal-end. It has also obtained linkages to coal mines. JSW Steel will hold 89 per cent of the equity with West Bengal Government taking up the balance.
The others have not been as fortunate. While the likes of ArcelorMittal and Posco are still trying hard to get their plans off the mark, Tata Steel's plans for three new projects of 22 mtpa in Jharkhand, Chhattisgarh and Orissa, have been delayed. The company was facing acquisition problems in Chhattisgarh and Orissa where some land owners are yet to relocate.
Having sunk huge investment in capacity addition, steel companies kept their focus on moving up the value chain by entering into tie-ups with global counterparts for high-end automobile steel. Essar Steel, for instance, roped in Japanese steel major Kobe Steel for technology know-how to produce advanced high-strength steel grade steel sheets used in automotive and other applications. JSW Steel signed a similar agreement with JFE Steel.
The year saw the industry switching to a new pricing regime for coal and iron ore. In April, it moved to a quarterly contract system, instead of annual resets in contract prices. While iron ore prices skyrocketed 90 per cent, it was 55 per cent in the case of coking coal. The new pricing policy exerted pressure on companies' operating margins and volatility in steel prices.
The luckier ones with deep pockets acquired mineral assets abroad. State-owned SAIL, RINL, CIL, NTPC and NMDC, formed a special purpose vehicle, International Coal Ventures, to acquire coal properties in Australia, Mozambique, Canada, Indonesia and the US. With an equity base of Rs 3,000 crore, the SPV can raise about Rs 7,000-crore debt. It will have a navaratna status which will mean no clearance for investments up to Rs 1,500 crore.
Outlook
India is expected to emerge as the third-largest consumer of steel in 2011 after China and the US . The biggest growth drivers will be building infrastructure, coupled with strong growth in the automobile and consumer goods sectors.
According to the World Steel Association, steel demand in India is expected to rise 13.6 per cent in 2011 to 68 million tonnes. China is tipped to grow by 3.5 per cent, albeit on a larger base.
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