Indian Steelmakers to Invest $2.7 Billion to Boost Capacity by 2012

India's leading public sector steel manufacturing companies Steel Authority of India Limited (SAIL) (New Delhi), Rashtriya Ispat Nigam Limited (RINL) (Faridabad, Haryana) and NMDC Limited (Hyderabad, Andhra Pradesh) will invest about $2.7 billion this fiscal year to increase steel production capacity to 35 million tons per year by 2012. Industrial Info Resources (Sugar Land, TX) reports that of the total amount, SAIL is expected to spend about $2.1 billion, while the remainder will be invested by RINL and NMDC.

RINL will double its production capacity to 6.2 million tons per year by 2012 and further to 8.5 million tons per year by 2013, and NMDC is setting up a 3-million-ton-per-year steel mill in Chhattisgarh. RINL has also submitted a proposal to the state government of Orissa to acquire the 1 million-ton-per-year Neelanchal steel mill in Orissa.

SAIL is implementing an $11.4 billion modernization project that will augment its steel manufacturing capability from the current level of 15 million tons per year to 26.3 million tons per year by the end of 2012. The capacity addition and modernization project include the firm's existing steel facilities in Rourkela, Bhilai and Bokaro, and is expected to be completed by December next year. SAIL is also setting up a 12 million-ton-per-year greenfield production unit in Jharkhand. SAIL, which had announced that it was looking to double its capital expenditures this fiscal year, is exploring the option of borrowing from capital markets to fund its expansion program. The company's capital expenditure outlay last fiscal year was about $1.1 billion. SAIL has signed a memorandum of understanding with the Ministry of Steel to achieve a target production of 12 million tons per year of saleable steel. The agreement also focuses on increasing the production of value-added steel products to 3 million tons per year. Despite the economic slowdown, SAIL has set a sales turnover target of $8.45 billion for the current fiscal year, 2009-10.

Industry experts have lauded the efforts of the public sector steel enterprises to proceed with expansion plans in the present economic climate, when several private and multinational steel players have deferred or phased out investment plans. In the past quarter, January-March, India produced 13.4 million tons of crude steel, an increase of 1.2 percent year over year. During the 10-month period between April 2008 and January 2009, India's steel production increased to 46.8 million tons, an increase of 1.1 percent year over year.

While India's national steel policy has set a target of augmenting steel production capacity to 110 million tons per year by 2019-20, the proposed and ongoing greenfield and brownfield projects are expected to increase production capability in the country to 124.06 million tons by 2011-12. As per agreements signed by private steel manufacturers with various state governments, India's steel manufacturing capacity is likely to touch 293 million tons by 2020. India presently manufactures more than 53 million tons per year of steel, which accounts for 7 percent of the total steel production worldwide.

India ranks among the top five steel consuming nations globally. According to a study conducted by Credit Suisse (Zurich, Switzerland), the country's demand for steel is expected to grow 16 percent every year until 2012. From January to March 2009, India's domestic steel demand rose by 3.8 percent year over year. The global steel industry had seen a big demand upswing because of the property boom in West Asia, the industrial and economic growth in China, and growth in the U.S. automobile industry. However, in the wake of the present financial slowdown, with West Asia reeling under a credit crunch, China witnessing a slump in demand and several automakers in the U.S. filing for bankruptcy, steel producers globally are exploring other options. The growing demand for energy worldwide has fueled the need for new oil and gas projects and infrastructure. Industry experts estimate that by 2012, this sector could open opportunities worth $118 billion for steel manufacturers worldwide.