Indian steel companies rush for ore

Businessworld
Baiju Kalesh

There are many reasons why Indian steel companies are working overtime to tie up raw material supplies for the near future. Not only is there a rush to build ports and bridges in India, global consolidation among miners such as BHP Billiton and Rio Tinto is forcing Indian companies to insulate themselves from rising commodity prices by buying large mines that can feed their plants, now and in the years to come.

Tata Steel, the world’s fifth largest steel maker, has begun work on its $1.5-billion iron ore mine in Ivory Coast to meet its expansion plans. Soon, rival JSW will sign an agreement with the government of Chile to acquire a one-billion-tonne iron ore mine, estimated to equal Tata Steel’s existing capacity in Jamshedpur.



JSW’s Sajjan Jindal will pay $250 million to the Chilean government and invest $150 million more to ship iron ore to feed his plants in Karnataka and West Bengal. JSW, which is doubling its steel capacity to 6.80 million tonnes, has two iron ore mines in India with combined reserves of about 110 million tonnes. The new iron ore mine could feed a 10-metric tonne (mt) plant for more than two decades.

Steel companies are scared of rising prices of two essential inputs: iron ore and coal. Iron ore prices have jumped 40 per cent, to $120 a tonne and coal, too, by 40 per cent to $100 during the past six months, largely driven by Chinese steel makers’ race to buy both the raw materials. A flood in Australia’s coal mines a few months ago disrupted supplies and led to higher prices. Plans to hike India’s steel capacity to 110 mt in a decade will put more pressure on the demand and cost of raw materials.

The rush to export iron ore to China may deplete the resources in two to three decades, says a steel maker who has firmed up plans similar to Jindal’s. Global consolidation is yet another fear factor. BHP Billiton’s bid for the Rio Tinto Group has also created panic among steel makers. The bid, if successful, would create a company that will control 26 per cent of the world iron ore market and half the Asian iron ore market. This could shift market control from the buyer to the seller and prices could skyrocket.

Steel makers such as Jindal and Tatas are, therefore, wasting neither time nor opportunity in their attempt to ward off stiff competition from their Chinese rivals. Locking raw material supplies, both overseas and at home, would insulate JSW and Tata Steel from the vagaries of price volatility and supply of sufficient feed stock.

Also see:
Steel Global Acquisitions

Steel and mining companies clash over ore

Steel investments