ArcelorMittal to Defer Steel Projects in India

ArcelorMittal (Luxembourg), the world's largest steel producer, is delaying investment plans worth $20 billion-$25 billion in India by at least two years. Industrial Info Resources (Sugar Land, TX) reports that the company had planned to build two integrated steel mills in the eastern states of Jharkhand and Orissa with a combined capacity of about 25 million tons per year of steel. According to Vijay Bhatnagar, Chief Executive of the firm's Indian operations, ArcelorMittal's decision to defer the projects comes in the wake of the current global economic crisis and inordinate delays in land acquisition.

The company had planned to start commercial production of the facilities in 2012 but has now postponed it until 2014. With construction of the Jharkhand mill initially planned to begin by early 2010, production of the first phase was to commence in the second half of 2012. Construction is now likely to start after 2011.

ArcelorMittal said that the cumbersome land acquisition process in Jharkhand is a major deterrent in setting up the steel mill. The company requires about 10,000 acres of land for the plant, of which the state government has offered only 1,058 acres. Initial delays came about in seeking the necessary approvals from the government for mining iron ore deposits in Karampada in the West Singhbhum district of Jharkhand. ArcelorMittal eventually obtained mining licenses in June 2008 but is still in the process of seeking approvals for its mining plan. Orissa's state government has also provided land to ArcelorMittal but is yet to complete the administrative formalities of transferring the land in the developer's name.

The firm forecasts that the global demand for steel would fall by more than 7 percent-10 percent in 2009. The economic slowdown has caused a slump in sales across sectors ranging from automobiles and real estate to household appliances, consequently affecting steel manufacturers and mining firms worldwide.

The company plans to re-evaluate the costs of its projects in India and is considering downsizing its investment by half for the first phase. It is likely to build facilities with capacities of 3 million tons per year in the first phase instead of 6 million tons per year, as was originally planned. However, the total capacity would remain unaffected. Upon completion, the steel mills in Orissa and Jharkhand will have a production capacity of 12 million tons per year.

ArcelorMittal has been keen on investing in the emerging economies of Brazil, Mexico, China and India but has faced setbacks in China and India. In December 2007, the firm had announced that it would increase its stake in China Oriental Group Company Limited (HKG:0581) (Hong Kong), an integrated iron and steel manufacturer, from 28 percent to 73.13 percent through an open offer. The deal would have strengthened ArcelorMittal's position in China's domestic steel market. However, regulations of the Chinese government restricting ownership of foreign companies in the country's steel mills forced ArcelorMittal to sell its stakes in May 2008. The company now holds only a 29 percent stake in China Oriental.