India's SAIL and RINL to Boost Steel Production with $14 Billion Investment

Leading Indian steel manufacturers, Steel Authority of India Limited (SAIL) (New Delhi) and Rashtriya Ispat Nigam Limited (RINL) (Faridabad, Haryana) are currently undertaking capacity expansion programs to increase combined steel production from the companies' present 17.4 million tons per year to 29.76 million tons per year by 2011-12 with a total investment of $14.35 billion.

According to reports from Industrial Info Resources (Sugar Land, TX), SAIL plans to increase its production capacity of hot metal from 14.4 million tons per year to 23.46 million tons per year, while RINL is expanding its production capacity from 3 million tons per year to 6.3 million tons per year. The hot metal production capacity of SAIL's steel plant in Rourkela, Orissa, is being increased from 2.12 million tons per year to 4.5 million tons per year.

RINL's ongoing expansion project will entail an investment of $2.46 billion. The firm had earlier scheduled the expansion project for completion by 2011-12 but recently announced that it would complete the project ahead of schedule and begin commercial production by October 2010. Commissioning and stabilization of the augmented unit is scheduled to take place from March to September 2010. RINL has reportedly firmed up supplies of raw materials through contracts for iron ore with NMDC Limited (Hyderabad, Andhra Pradesh) and for coking coal with Coal India Limited (Kolkata, West Bengal).

During the past three fiscal years, from April 2006 to March 2009, SAIL has invested nearly $780 million, while RINL has invested nearly $830 million in capacity expansion. According to the recently announced Union budget, the steel-making public sector undertakings (PSUs) in the country will invest a cumulative amount of $2.8 billion, with SAIL alone accounting for $2.05 billion of the total investment, during the current fiscal year, 2009-10. The budget does not allow for financial assistance to SAIL, which will raise funds for its expansion activities through internal and extra budgetary resources.

According to Sushil Roongta, Chairman of SAIL, Indian steelmakers including SAIL, RINL and Tata Steel Limited (BSE:500470) (Mumbai) benefit from the decision taken by steel manufacturers worldwide to not undertake greenfield expansion projects at this time in view of the prevailing financial crisis, making it easier for the Indian firms to procure requisite raw materials and equipment at less expensive rates than before.

Because of an increase in demand from the automotive and construction sectors, steel consumption in India rose to 8.22 million tons in April and May 2009, an increase of 6 percent year over year. Speaking at the country's third steel summit organized by The Associated Chambers of Commerce and Industry of India (New Delhi), the Indian Minister of Steel, Virbhadra Singh, said the domestic steel sector has shown strong resilience in the face of the global financial slowdown and currently ranks third among steel producers worldwide, after China and Japan, in terms of production during the first five months of 2009. Singh also said that the Indian government is implementing administrative, monetary and fiscal measures to support the steel sector.

Steel consumption in India is expected to grow 6-8 percent this fiscal year. The sector recorded a growth of 3 percent in the first quarter of this fiscal year, with a growth of 3.4 percent in production and 5.3 percent in consumption year over year. Singh also indicated that the steel ministry would focus on assisting steel majors such as ArcelorMittal (Luxembourg), Essar Steel Limited (Mumbai), Jindal Steel & Power Limited (New Delhi) and POSCO (Pohang, South Korea) in reviving their stalled projects in the country. The steel ministry has chalked out a 100-day action plan to roll out initiatives aimed at achieving a steel production capacity of 124 million tons by 2011-12 through modernization and capacity augmentation programs for leading steel PSUs. These measures include the restructuring, reorganization and amalgamation of PSUs in order to achieve economies of scale, vertical integration and security of raw material supply.