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Steel: No going slow on investment

Jan 1, 2009

The BSE-Sensex is down by more than 50% since the start of the year 2008, while the BSE metal index is down by more than 70%. Steel industry is an important component of the metal index. The investors, on account of fears of economic recession in the US and European markets and the expected slowdown in the domestic markets have made a rather hasty retreat from the steel pack. Considering this gloomy situation, one is likely to conclude that capital investments by Indian steel companies will also be cut back on account of the global turmoil. However, if we analyse the projects that are been undertaken by some of the major steel companies, long term picture for the sector seems to be promising. In this article, we have summarized the investments that are been undertaken in the sector.

As per CMIE (Centre for Monitoring Indian Economy) capex survey, around 377 projects with total investment outlay of around Rs 8.2 trillion were outstanding in the Indian steel sector at the end of September 2008. Out of these 377 projects, around 167 projects were under implementation amounting to an investment of around Rs 3.6 trillion. The total investments envisaged in the sector at the end of September 2008 showed a massive 42% increase as compared to the same period last year.

Primary steel companies like Tata Steel, SAIL, JSW Steel, Essar Steel etc as well as international steel majors Arcelor Mittal and Posco roughly account for around 57% of the total outstanding investment in the sector. The projects planned by these companies are likely to add a capacity of around 120 m tonnes in domestic sector. More than 80% of the new capacity will be added through greenfield projects.

Steel sector: Investments looking good
Company Project Capacity addition ( m tonnes) Investment (Rs bn) Expected completion (year)
Tata Steel Jamshedpur exp. (Phase II) 2.9 45.5 2010
Tata Steel Orissa Steel project 6.0 220.0 (Phase I of 3 m tonnes) 2010
Tata Steel Jharkhand Steel project 12.0 420.0 NA
Tata Steel Chattisgarh Steel project 5.0 180.0 NA
SAIL Modernisation 10.4 530.0 2010
Rastriya Ispat Nigam Vishakapatnam exp. 3.3 86.0 NA
JSW Steel Karnataka phase II 3.2 70.0 2010
JSW Steel Jaigadh 1.5 20.0 NA
JSW Steel Jharkhand Steel project 10.0 350.0 NA
JSW Bengal Steel West Bengal 9.2 350.0 (Phase I of 3 m tonnes) 2010
Arcelor Mittal India Orissa Steel project 12.0 400.0 NA
Arcelor Mittal India Jharkhand Steel project 12.0 400.0 NA
Posco India Orissa Steel project 12.0 510.0 NA
Ispat Industries Maharashtra 0.6 2.0 2008
Ispat Industries Maharashtra 1.4 20.0 2011
Ispat Industries Maharashtra 5.0 60.0 2015
Ispat Industries Jharkhand Steel project 2.8 67.5 NA
Ispat Industries Karnataka 3.0 71.5 NA
Essar Steel Chattisgarh Steel project 3.2 70.0 NA
Essar Steel Hazira SEZ 3.9 105.0 NA

While the steel companies have enough resources to finance these massive projects, major problems faced by them are on the front of land acquisitions, forest clearances, and iron ore mining leases for the greenfield projects. Despite all these problems, none of the steel companies have made announcements to shelve their projects. This can be attributed to the presence of significant amount of high quality iron ore and coal reserves in India and the potential opportunities in infrastructure, auto and construction sectors. Thus, long term scenario looks promising indeed.

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