If mergers and acquisitions (M&A) defined the steel sector in 2007, policy initiatives and consolidation of gains will underline 2008. Last year, the industry was home to the biggest ever acquisition by an Indian company in the form of Tata Steel's takeover of Corus for $12 billion. It catapulted the Tatas to the 5th position among the world's steel makers with a combined finished steel production capacity of 27 million tonnes (mt).
Clearly, the industry had gotten a taste of inorganic growth and was relishing every inch of it. The Tatas followed up the Corus deal with a collaboration with Vietnam Steel Corp for building a 4.5 mt plant in the southeast Asian nation. Next was the acquisition of a coal block in Mozambique with Australia-listed Riversdale Mining and a pact with the Ivory Coast government-owned SODEMI to mine iron ore.
So, in terms of scale, 2007 was the year of the Tatas. But others were smelting strategies too. Essar and JSW Steel joined the bandwagon, with the Ruias buying the Canadian Algoma Steel for $1.58 billion and US-based Minnesota Steel, the Jindals' JSW Steel reached out to buy a service centre in the UK. Separately, Navin Jindal-led JSPL bought huge reserves of iron ore in Bolivia.
This M&A wave is part of a two-fold strategy -- one, to buy loss-making defunct steel companies in the West; and two, to acquire mines in Africa, Australia and elsewhere in the world. While the purpose of taking over existing steel mines is to target a larger share of the fast expanding international market for steel products and enjoy greater economies of scale, that of buying overseas mines is to gain access to vitally needed coal reserves. The Indian steel sector has ample iron ore reserves but is still dependent on imports of coal.
Coming to mining, 2008 is going to be a policy-packed year. The single biggest thing to look forward to will be the new mining policy. The question is: will the country's outdated mining policy get the thrust needed to boost exploration activities on the one hand and facilitate maximum possible exploitation of proven mineral reserves on the other?
This M&A wave is part of a two-fold strategy -- one, to buy loss-making defunct steel companies in the West; and two, to acquire mines in Africa, Australia and elsewhere in the world. While the purpose of taking over existing steel mines is to target a larger share of the fast expanding international market for steel products and enjoy greater economies of scale, that of buying overseas mines is to gain access to vitally needed coal reserves. The Indian steel sector has ample iron ore reserves but is still dependent on imports of coal.
Coming to mining, 2008 is going to be a policy-packed year. The single biggest thing to look forward to will be the new mining policy. The question is: will the country's outdated mining policy get the thrust needed to boost exploration activities on the one hand and facilitate maximum possible exploitation of proven mineral reserves on the other?
The policy, now awaiting Cabinet approval, may sidestep the important issue of iron ore exports but will give states some powers of revenue sharing for mineral resources. Similarly, the Central government will get some say in the state subject of allocation of mines in the event of inordinate delays. Year 2008 may also see an end of the debate on royalty rates, which are set to be revised. However, there remain several problems like procedural hurdles and approval delays which collectively threaten to spoil the steel industry party.
For an industry that was in dire straits only five years ago, 2007 signalled the peak of the crest. India found itself at the epicentre of activity in the global landscape with heavyweights like Arcelor Mittal and Korean Pohang Steel Company (Posco) lining up with big ticket investments. Just a passing look at the investment figures being touted is enough to see the sector's coming of age. By fiscal 2011-12, the industry is expected to receive investment worth Rs 275,000 crore, a figure which will go up to Rs 870,000 crore by 2019-20.
While mega-projects have become the order of the day, the bad news came from Posco's Rs 52,000 crore project in Orissa, that continued to face opposition. Construction work on the Posco project is now scheduled to start in April 2008 and how far the timeframe is maintained will have a huge bearing on whether the investment dreams are realised.
Source: The Indian Express
1st January, 2008