As mega greenfield steel projects announced by behemoths ArcelorMittal and Posco struggle to make progress, multinational companies are charting a new route into India: Through equity participation in existing companies or by forging joint ventures.
In September, the world's biggest steel maker ArcelorMittal bought a stake in Uttam Galva. Japan's third largest steel maker Sumitomo has entered into a marketing agreement with Bhushan Steel and said it would explore a joint venture with the Indian company for its upcoming project in West Bengal.
Industry experts say that even though international companies face problems in setting up new projects on their own, given the problems associated with acquiring land and rehabilitating the displaced people, their keenness to become a part of the growing Indian market remains intact. Therefore the trend of forging partnerships with Indian companies may gather more pace in the coming years.
"There are huge difficulties in setting up greenfield steel projects in India, especially for the foreign companies. Therefore it makes sense for them to become a part of an Indian company through equity participation," said Sandeep Jajodia, executive vice-chairman and managing director of Monnet Ispat and Energy.
India has an average steel consumption of 46 kilograms, compared with the world average of 190 kg. In the April-November period of the current financial year, the domestic consumption grew by 8 per cent while production grew by just 3 per cent.
"India has a huge potential to grow. Steel consumption is growing faster than production with the boom in infrastructure, housing and automobiles. Undoubtedly, multinational companies want to have a presence in India," said an analyst.
Little surprise then that Sumitomo Metals is exploring a joint venture with Bhushan Steel in its proposed 6 million tonne steel plant in West Bengal. Sumitomo's equity in the first phase of the project is likely to be in the range of 26-40 per cent. The first phase is estimated to absorb an investment of Rs 20,000 crore (Rs 200 billion).
"We have trust in the growth of this country. Steel demand is growing so rapidly. It is a very important market for Sumitomo to explore," Hiroshi Tomono, president of Sumitomo Metal, said.
ArcelorMittal's purchase of equity in Uttam Galva, through ArcelorMittal Netherlands, gave the global giant a foothold in India even as its two mammoth projects in Jharkhand and Orissa have made little headway.
Mittal has lined up two huge integrated steel projects, worth $20 billion, in the two East Indian states. The projects, announced in 2005 and 2007, respectively, were to be Mittal's first attempts to build new plants since the steel tycoon created the world's largest steel company, Arcelor Mittal, through big-bang deal. However, there has been little progress in both these projects.
Similarly, the plan of the world's third-biggest steel maker, South Korea's Posco, to set up a 12-million-tonne steel plant, again in Orissa, has not made much headway since its announcement in 2005.
