Mittal Plans $8.7 Bln Plant in India to Tap Iron Ore

Mittal Plans $8.7 Bln Plant in India to Tap Iron Ore

7th July 2006

(Bloomberg)

Mittal Steel Co., which a week ago sealed a purchase of rival Arcelor SA in the world's biggest- ever steel transaction, plans to build an $8.7 billion plant in India, to curb iron-ore costs and tap rising Asian demand.

Mittal will build a 12 million ton-a-year plant in Orissa, Chairman Lakshmi Mittal said today in Bhubaneswar. The project, Mittal's second venture in India, will compete with Posco, the world's fourth-biggest steel producer, which is building a $12 billion plant in the eastern state.

Mittal Steel and Posco plan to spend $21 billion over the next seven years in India to tap rising demand and the world's fifth-largest iron-ore reserves. Mittal expects steel demand in India and China to grow three times faster than in Europe and North America over 10 years. Iron ore prices have climbed 19 percent this year after soaring a record 71.5 percent last year.

``If you look at steel consumption, the future growth will be in China and India,'' said Richard Brakenhoff, an analyst at Rabobank NV in Amsterdam. ``In fact, growth per annum will be faster in India than in China. So, it makes sense.'' He has a ``buy'' rating on Mittal Steel shares.

Mittal may want to buy steel companies in Asian countries to profit from economic growth rates of more than 10 percent, Hans Kerkhoven, Mittal's Europe Finance Director, said June 14. China's economy expanded 10.3 percent in the first quarter and India's grew 8.4 percent in the year ended March, the fastest after China among the world's 20 biggest economies.

India Demand

``We are focusing on India and China, and India is important for us to remain the biggest steel company,'' Mittal said today after meeting Orissa chief minister Naveen Patnaik.

Mittal expects India's steel demand to grow an average 7.3 percent a year over the 10-year period and China's to expand 6.9 percent. Europe's steel demand will only average 1.9 percent a year, North America's 1.8 percent a year and Japan at 1 percent a year, Mittal said in a presentation on March 9.

Mittal in October announced a $9 billion, 10 million-ton-a year plant in Jharkhand, which neighbors Orissa. India's states Jharkhand, Orissa and Chattisgarh account for 70 percent of the nation's coal reserves and 55 percent of its iron ore, according to McKinsey & Co.

Mittal will sign an accord with the Orissa state government in the ``near future,'' Mittal said. The project will be built in two stages of 6 million tons each, he said, without saying when construction work would begin. Mittal, was accompanied by his son Aditya, the company's chief financial officer, and Malay Mukherjee, the chief operating officer.

`Not Happy'

The Orissa project may precede the Jharkhand plant if the company is able to get the necessary approvals, Mittal said. The progress on the Jharkhand plant has been slow, he said.

``The progress is not satisfactory as we would like it to be,'' Mittal said. ``We're still evaluating our position. Wherever things move faster, we will start there. If we can come to a deal here, we will take up the Orissa project first.''

Delays in allocating mining licenses has undermined India's efforts to secure more overseas investments, leaving the country short of the raw materials needed to feed an economy forecast to grow 8 percent this year. India received $8.3 billion in foreign direct investment in the year ended March. China got $60 billion in overseas investments in 2005.

Last month, Posco said it may scrap the $12 billion project, the biggest overseas investment ever under in India, unless it's granted an exclusive access to iron ore mines. Orissa agreed to allow the steelmaker a lease to mine 600 million tons of iron ore. Permission has yet to come from India's central government, which is reviewing the country's mining laws.

Orissa government will form a panel to ``support'' Mittal's project, Chief Minister Patnaik told reporters.

Mittal last month won an approval from Luxembourg-based Arcelor's shareholders for a 26.9 billion-euro purchase of the European company, ending a five-month bitter feud.