Steel Goal Fades as $12 Billion Projects Dumped: Corporate India

Photographer: Dhiraj Singh/Bloomberg

A worker polishes stainless steel container lids at a workshop in the suburb of Mira-Bhayander in Thane, India. The Indian rupee’s plunge to a record this year, which lifted equipment and raw material import costs, has exacerbated the nation’s decline as a favored steelmaking destination. Close

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Photographer: Dhiraj Singh/Bloomberg

A worker polishes stainless steel container lids at a workshop in the suburb of Mira-Bhayander in Thane, India. The Indian rupee’s plunge to a record this year, which lifted equipment and raw material import costs, has exacerbated the nation’s decline as a favored steelmaking destination.

ArcelorMittal (MT) and Posco’s decisions to scrap $12 billion of proposed steel projects in India and delays in building plants by Tata Steel Ltd. (TATA) and its peers will probably cut the nation’s 2020 capacity target by a quarter.

India may add about 50 million metric tons in the next eight years, half of an earlier plan, taking total capacity to 150 million tons, according to the average estimate of six analysts, government officials and company executives in a Bloomberg survey. Slowing demand, land acquisition delays, rising funding costs and difficulties in getting iron ore mining permits are diminishing the viability of the projects, said A.S. Firoz, the steel ministry’s chief economist.

The Indian rupee’s plunge to a record this year, which lifted equipment and raw material import costs, has exacerbated the nation’s decline as a favored steelmaking destination. Steel is crucial to Prime Minister Manmohan Singh’s effort to boost infrastructure investment and revive economic growth from 5 percent, the slowest in a decade.

“The actual work for easing the process of mining permits and land acquisitions is far from desirable, making steel investments a distant dream for both foreign and local companies,” said Devendra Pant, chief economist at India Ratings & Research, the local unit of Fitch Ratings. “Delays in implementing large-scale projects may spur imports of these products, critical for infrastructure, eventually putting enormous strain on our macro-economic balances.”

ArcelorMittal, Posco

ArcelorMittal, the world’s biggest steelmaker, ditched its 12 million-ton-a-year project in Odisha last week after waiting more than seven years to get land and permits to mine for iron ore, a key raw material. South Korea’s Posco, which is close to acquiring all the land for a planned $12 billion plant and port in the eastern state, exited its project in the southern state of Karnataka for similar reasons.

“India has certainly lost sheen,” said Prasad Baji, an analyst at Edelweiss Financial Services in Mumbai. “I don’t see the investment cycle returning in the near future.”

Tata Steel, India’s biggest producer of the alloy, fell 3 percent to 233.8 rupees at the close in Mumbai, extending its drop this year to 45 percent. Steel Authority of India Ltd., the second-biggest, lost 1.3 percent to 44.35 rupees, extending this year’s decline to 51 percent. Smaller rival JSW Steel Ltd. (JSTL) dropped 1.3 percent to 564.2 rupees, taking its fall this year to 30.5 percent.

“It looks very difficult we’ll be able to reach 200 million tons by 2020, given the ongoing issues with land acquisition and other processes,” Ponnapalli Madhusudan, finance director at Rashtriya Ispat Nigam Ltd., a state-owned unlisted steelmaker, said by phone from the southern city of Visakhapatnam. “The timeline to achieve this target may be extended.”

Tata Steel, Jindal

Tata Steel in 2005 announced plans to spend $10 billion for a 12 million ton project in the eastern state of Jharkhand. It expected to set up the first phase of 6 million tons within three years to 4 1/2 years from the date of obtaining all clearances. The Mumbai-based company is awaiting a resettlement and rehabilitation policy from the state government for the project, according to its website.

“Steel projects have been facing difficulties for the past two years due to delays on various fronts, but there is hope things will improve,” said Sushil Maroo, deputy managing director at Jindal Steel & Power Ltd. (JSP), controlled by billionaire lawmaker Naveen Jindal. “The country has taken steps to bring transparency to mine allocations and this will help improve things.”

Jindal Steel has been awaiting mining permits for almost a year for a coal mine in Odisha, where it’s building a steel mill that will run on gas produced from thermal coal. The company has completed all formalities needed for the permit, Maroo said in a phone interview on July 19.

Bengal Plant

JSW Steel deferred the construction of a $3 billion steel project in the eastern state of West Bengal, citing lack of assured raw material supplies, Group Chief Financial Officer Seshagiri Rao said in April. The Mumbai-based company got land and necessary approvals last year for the 3 million-ton plant.

The company also scrapped expansion at its largest factory in Karnataka that is running at less than capacity due to an iron ore shortage.

Corporate and infrastructure investments in India started slowing because of policy bottlenecks and a tighter monetary policy aimed at curbing commodity prices, according to the Economic Survey for the year ended March 31. Almost half of the major infrastructure projects, including power plants and oil refineries, were running behind schedule, said the survey, which is a report on the government’s performance for the year.

“The policy paralysis is taking a big, big toll on the economy,” said Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai. “It is killing the manufacturing sector and soon we will see the ripple effects on services.”

To contact the reporters on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net; Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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