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.