Bloomberg News

ArcelorMittal’s First Indian Steel Mill May Beat Posco Plant

September 20, 2011

(Updates shares in fifth paragraph.)

Sept. 20 (Bloomberg) -- ArcelorMittal may beat South Korea’s Posco to become the first overseas steelmaker to build a plant in India, with Karnataka state authorities set to hand over land for the $6.3 billion project in the next six months.

The government of the southern province, where ArcelorMittal aims to build a 6 million-metric-ton-a-year plant, has acquired more than three-quarters of the 4,000-acre site in the Bellary district from farmers, state Industries Commissioner Maheshwar Rao said in a phone interview. Posco, also planning a 6 million-ton plant in the state, has yet to pick a location, according to state Industries Minister Murugesh Rudrappa Nirani.

ArcelorMittal and Posco, which have $32 billion of planned projects in the eastern Indian states of Orissa and Jharkhand, have waited more than six years because of delays in securing approvals and land. While they wait, steel use rises, outpacing global demand. Indian consumption may climb as much as 9 percent in the next two to three years, while world demand may remain short of peak levels until 2013 as construction projects slow in developed nations, Fitch Ratings said in a July 13 report.

“ArcelorMittal is trying to benefit from the Indian steel industry, forecast to continue growing in the coming years,” said Veronique Colas, a financial analyst with a “buy” rating on the stock at Paris-based Alphavalue SAS. “India has ambitious plans for large-scale expansion of power supplies and electricity grids, roads and railways, and all of these are large users of steel.”

Shares Slide

ArcelorMittal, the world’s largest steel producer, rose as much as 2.2 percent to 12.995 euros and traded at 12.725 euros as of 11:19 a.m. in Amsterdam. The stock has dropped 53 percent this year, compared with an 18 percent decline in the benchmark Stoxx Europe 600 Index. Shares of Posco, the world’s third- biggest steelmaker, retreated 0.2 percent to 413,000 won in Seoul.

In June last year, Karnataka invited steelmakers to set up mills in the state, aiming to exploit its iron-ore resources and compete with Orissa and Jharkhand, where projects including steel and power plants have stalled because of protests by villagers unwilling to vacate land.

Karnataka received interest from ArcelorMittal, Posco and five other companies for projects valued at a combined 1.42 trillion rupees ($30 billion). While ArcelorMittal faced no opposition from farmers, the government asked Posco to select a new location after villagers at an earlier site at Gadag raised objections, Press Trust of India said on Aug. 17, citing Nirani.

‘Promising’ Project

“The ArcelorMittal project is one of the most promising greenfield projects announced last year,” Rao said on Sept. 17 from Bangalore. “There’s been no trouble getting the land and we don’t expect any in future. The price has been fixed and we have the consent of most of the farmers.”

A bill aimed at expediting land acquisition in India and increasing compensation to farmers was approved by the cabinet on Sept. 5 and introduced to the lower house on Sept. 7. The bill has been referred to parliament’s standing committee on rural development, which will prepare a report in three months.

“The proposed laws will sharply increase the cost for private buyers and many of the projects may become unviable depending on the area and price of land,” said Niraj Shah, an analyst with Fortune Equity Brokers India Ltd. “I don’t think the bill will be passed anytime soon as it will require the consent of all states.”

Demand Outlook Cut

India’s steel demand, which was forecast by the government to expand 12 percent this fiscal year, grew 1.3 percent in the first five months. The Steel Ministry has cut its consumption growth forecast for the year through March to 6 percent as soaring interest rates damp purchases of cars and homes and delay public-works projects.

Karnataka is among the nation’s top iron-ore producing regions. The provincial government in July 2010 banned overseas shipments of ore to retain the raw material for local steelmakers. While the Supreme Court ended the ban on April 5, exports remained halted following probes into illegal mining.

ArcelorMittal may still have to overcome other hurdles in Karnataka. The company is seeking approval to mine iron ore at Donimalai in Bellary for its proposed plant, according to data on the Mines Ministry’s website. India’s top court on Aug. 26 banned extraction of the ore in two Karnataka districts, extending curbs placed on mining in Bellary region on July 29.

“We are making slow progress in all the three states, but I would say that Karnataka is making better progress in terms of land acquisitions,” ArcelorMittal Chairman Lakshmi Mittal said in a teleconference on July 27. “But there is still lot of work to be done on mining and environment approvals, and a lot of approvals are still pending.”

Local Opposition

A $12 billion mill planned by Posco in Orissa and two projects valued at $10 billion each by ArcelorMittal in Orissa and neighboring Jharkhand have languished since 2005. While Posco got final approval for its plant in May, it struggled to acquire the land after protests from farmers. Local opposition also prompted ArcelorMittal to relocate its project to a different district in Jharkhand.

Posco is negotiating with the Orissa government to renew a five-year agreement that lapsed in June last year. While the state acquired about 2,000 acres for Posco’s plant, the process had to be halted in June after objections from villagers.

The Indian government proposes to spend about $1 trillion in the five years through 2017 to upgrade the country’s roads, ports and power networks. India is Asia’s fastest-growing major economy after China.

--Editors: Indranil Ghosh, David Merritt

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net.

To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net.


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