Home > Market change > India may help ‘Mega Steel Projects’

India may help ‘Mega Steel Projects’

April 28, 2011

“India’s Ministry of Steel is preparing a plan to promote several mega-steel projects, each with a capacity of 10 million metric tons, to ramp up domestic steel production at a time when demand is forecast to grow 10% annually as the country makes huge investments in the infrastructure sector. The idea is to create at least 60 million tons of new steel-making capacity by 2020, spread across the mineral-rich provinces of Jharkhand, Orissa, Chhatisgarh, West Bengal, Maharashtra and Karnataka.

The government is concerned about the delays despite demand steadily rising because of the need to construct ports, houses, power plants, factories and automobiles. Domestic demand for steel is expected to grow 10% every year over the next decade, driven by an estimated investment of $1 trillion on infrastructure projects during the 2012-2017 period.”

Source: Wall Street Journal, April 27 2011

Observations:

  • India currently is the world’s 3rd largest steel producer, with a capacity of 73mtpa in 2009-2010 and production close to capacity. Still the country’s steel imports are steadily increasing to satisfy domestic demand. Demand forecast for 2012 is 120mtpa.
  • The ministry’s plan is to introduce a 3-step process in which a state-controlled company packages the projects and sells a ‘ready-to-go’ package of land and licenses to the highest international bidder.

Implications:

  • The ministry’s plan is likely to get opposition from local and regional governments, which currently have significant power in negotiating directly with potential project developers. However, if the plan works it might significantly speed up the development process of both mining and steel processing in the country.
  • The plan is fully designed from the perspective of domestic steel production. As a result it will be hard for mining companies to secure good iron ore and coal assets in the country without partnering with a steel producer in bidding for a packaged project.

©2011 | Wilfred Visser | thebusinessofmining.com

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