After buying out NatSteel of Singapore for $283 million last year, Tata Steel is eyeing its second acquisition in South East Asia, including China. "Discussions are in progress," Tata Steel managing director B Muthuraman said at a press briefing on Wednesday.
According to Muthuraman, Tata Steel was targeting a steel producer with a capacity to produce 2 to 3 million tonnes of steel per annum. He, however, did not disclose the amount of money the company had earmarked for the acquisition.
He said with the acquisition, Tata Steel will have production units at multiple locations in the region, just like NatSteel. Muthuraman added that the company was looking for facilities to produce long products that are used in construction, as opposed to flat products used in consumer goods.
The acquisition would be in sync with Muthuraman's belief that China, India and Russia would drive the world steel demand in the coming two decades and a half.
"The per capita consumption of steel in China will jump from 300 kg to 600 kg soon," he said. New facility for long products will come in handy in tapping the demand from China, which is adding infrastructure in a big way.
The acquisition will complement the frenetic expansion that Tata Steel has undertaken at its existing plant at Jamshedpur in Jharkhand and at greenfield ventures in Orissa and Chhattisgarh that will see its annual installed capacity climb to about 18 million tonnes by 2010 at a cost of up to Rs 25,000 crore (Rs 250 billion).
The funds for the expansions will come from internal accruals and borrowings, which should not be difficult to raise by leveraging the company's current favourable debt-equity ratio of 0.4.
Talking about the prospects for the global steel industry, Muthuraman said he expected prices of finished steel to recover over the next two months and reach the same level as three months ago.
He also said there would be a correction in the prices of raw materials like iron ore, coal and coking coal in the next year-and-a-half with more investments being in these sectors.