Mittal to Spend $9 billion in India
Mittal to Spend $9 billion in India
Debarati Roy, Bloomberg/Mumbai
Mittal Steel Co., the world's biggest steelmaker, agreed to spend
US$9 billion to build a plant in India in return for assured raw
material supplies from a country that holds the world's sixth-
largest iron ore reserves.
Chairman Lakshmi Mittal signed an accord with the Jharkhand
state government in the provincial capital of Ranchi on Saturday.
The eastern Indian state has assured Mittal of iron ore supplies
for 50 years.
South Korea's Posco agreed on June 22 to spend $12 billion on
a steel project in neighboring Orissa state, which is also rich
in iron ore. Steelmakers worldwide are moving closer to raw
materials and expanding to meet demand from China and India.
"Jharkhand is well known for its raw material reserves and
good infrastructure and is therefore an excellent location for
setting up this type of Greenfield venture," Lakshmi Mittal said.
The investments into new plants are being driven by surging
demand from China, where the economy grew 9.5 percent in each of
the past two years, fueling sales of metals to build houses, cars
and electronic goods.
Prices for iron ore rose by a record 71.5 percent from April
1, while coking coal prices rose by 120 percent, according to
prices negotiated by Japanese steelmakers, a global benchmark.
Mittal Steel will initially set up a capacity of six million
tons in Jharkhand, within four years, and then double the
capacity.
The agreement ends almost five months of talks as Mittal plans
to increase capacity to 100 million metric tons from about 70
million tons.
Mittal Steel was created last year through the combination of
Ispat International NV and LNM Holdings NV. The company, which is
88 percent owned by Lakshmi Mittal's family, became the biggest
steelmaker after it bought Richfield, Ohio-based International
Steel Group for $4.5 billion in April.
India, which has lagged China in attracting investments, drew
two of its biggest foreign investments this year in the steel
sector. The country will have to provide adequate infrastructure
to attract more investors, economists such as A.S. Firoz said.
The three states of Jharkhand, Orissa and Chhattisgarh, which
account for 70 percent of the country's coal reserves and 55
percent of its iron ore, need to build roads, railway links and
port to ensure companies are able to import coal and transport
steel to customers, Firoz, chief economist at India's steel
ministry said.
"These mineral-rich states will find it difficult to support
the mega projects with their present infrastructure facilities,"
Firoz said. "The fate of these projects will hang in balance"
until the country invests in improving facilities.
Mittal is looking at setting up a 2,500 megawatt power plant.
Posco said it will spend as much as $2 billion to build a
power station and secure water supply to run the plant and a port
and roads to ship out steel from Orissa state, one of the poorest
in the nation. India will invest $1.2 billion in the state to
build roads and rail link in the state in the next four years.
India's second-largest steelmaker Tata Steel Ltd. plans to
build a 12 million ton plant in Jharkhand. The state is also home
to Tata's existing 5 million ton mill and Steel Authority of
India Ltd.'s 4 million ton plant.
"Since the state can barely support the existing plants, it
needs to take up developing roads and rail links on a priority
basis," Firoz said.
Jharkhand's government is studying the cost of building roads
and railway links to mines and ports, Arun Kumar Singh, the
state's secretary of mines and geology, said.
"We will ensure that we improve our infrastructure facilities
before they begin production," Singh said.