For Mittal, frustration gives way to hope in India

In 2012, Lakshmi Niwas Mittal, chairman and CEO of the world’s largest steelmaker, ArcelorMittal, was at his wit’s end, having waited for six years to get his steel plant projects in India going. He finally let off steam at a World Steel Dynamicsconference in New York. In a tirade against the then ruling dispensation, the United Progressive Alliance, the steel tycoon said India was putting progress at risk and subjecting hundreds of millions to remain in poverty longer than previously anticipated. A year later, his company pulled out from at least one of the three proposed steel plants in the country, costing India an investment of Rs 40,000 crore.

Fast forward to May 2015, London. A smiling Mittal posed for a picture with SAIL Chairman Chandra Shekhar Verma and Steel Secretary Rakesh Singh. Seen in a supporting role was Aditya Mittal, CFO and CEO, ArcelorMittal Europe. The occasion was the signing of a memorandum of understanding (MoUA memorandum of understanding (MoU) is an agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement...) between the two steel behemoths on setting up an automotive steel manufacturing facility as a joint venture in India. ArcelorMittal is a force to reckon with in the global automotive sector with a 17 per cent market share.

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Mittal’s statement released to the media soon after the MoUA memorandum of understanding (MoU) is an agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement... was signed read: “The automotive sector is a highly strategic and important market for ArcelorMittal; establishing an automotive focused production in India, one of the world’s fastest growing automotive market, is a natural progression in executing our global automotive strategy.”

Evidently, Mittal’s anger and disappointment have been replaced by new hope. The most fundamental change between then and now is the government, now led by the Bharatiya Janata Party, or more significantly, Prime Minister Narendra Modi.

Having signed the MoUA memorandum of understanding (MoU) is an agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement..., the two companies in the coming months will see a working group with representatives from both companies working out a structure for the proposed joint venture and carry out feasibility studies. “The feasibility study will take two years and reaching the project commissioning stage could take another two years,” say SAIL officials. Though an ArcelorMittal spokesperson declined to speculate on the scope of the joint venture, SAIL officials believe the focus will be on skin panels for automobiles, which requires specialised steel. SAIL will supply ArcelorMittal the raw material -high-grade hot rolled steel -from its Rourkela Steel Plant.

Going the China way
Mittal’s company is likely to follow the model it implemented in its projects in China, according to sources close to the development. Last year, the global steel major opened its first steel making facility there through a joint venture, the Valin ArcelorMittal Automotive Steel (VAMA), set up with an investment of $832 million. Chinese firm Hunan Iron and Steel has a stake in the company. The contours of that partnership look pretty much like the SAIL-ArcelorMittal venture.

The SAIL-ArcelorMittal partnership would be a me-too in the Indian steel sector. Last September, Jamshedpur Continuous Annealing and Processing Company commissioned its 600,000 tonnes per annum facility for manufacturing of automotive grade continuous annealed products as a 51:49 joint venture of Tata Steel and Nippon Steel & Sumitomo Metal Corporation. Earlier, JSW Steel launched its second cold rolling mill with a capacity of 2.3 million tonnes at Vijayanagar to cater to the auto sector.

“Right now, there is no space or requirement for another automotive steel venture,” an industry representative points out. However, he points out that the Mittal project will be “commissioned in some years to come”. Some figures would put things in perspective. The skin panel requirement for 3.5 million cars manufactured in India today is around 400,000 tonnes. “Skin panel, however, is just one requirement, the target has to be the entire auto grade steel requirement of a car,” an industry veteran says. A small car requires 500-600 kg of flat steel, of which 100-120 kg consists of the skin panel. In four years, that is tentatively when the SAIL-ArcelorMittal will take off, India hopes to be manufacturing seven million cars.

The other projects
There is progress on ArcelorMittal’s other ventures too. After giving up on Odisha, ArcelorMittal has been pursuing greenfield projects in Jharkhand and Karnataka, where it plans to set up 12 million tonne and 6 million tonne plants, respectively.

In Jharkhand, ArcelorMittal is awaiting clearance from the Union ministry of environment and forest to acquire the mining lease for iron ore mines. In the meantime, it has also started the process of acquiring land for setting up the plant. In Karnataka, ArcelorMittal India has acquired 2,796 acres of the total requirement of 4,865 acres in the Bellary district for construction of the steel plant. The focus is now on getting raw material linkages.

“We are making progress on both our Karnataka and Jharkhand projects, though it is slower than we would have liked,” says an ArcelorMittal spokesperson. “Ensuring raw material security is critical to both projects, especially in light of the recent Mines and Mineral Development Regulation Act that was announced in January of this year. That is our current focus.”

To say that the projects were delayed would be understating the company’s problems. ArcelorMittal signed an MoUA memorandum of understanding (MoU) is an agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement... with the Jharkhand government in 2005. Unhappy with the slow progress there, it signed another MoUA memorandum of understanding (MoU) is an agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement... with the Odisha government for a similar sized plant a year later. And then, it signed the MoUA memorandum of understanding (MoU) is an agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement... with Karnataka in 2010. The delays forced the company to pull out many of its officials from India. Sources say that when at one point the number of people in ArcelorMittal India counted in the hundreds, by December 31 last year, the total had slid down to 34.

However, ArcelorMittal didn’t quite give up on India. With the greenfield projects not going anywhere, ArcelorMittal bought 33.8 per cent stake in Mumbai-based galvanised steel maker Uttam Galva Steels in 2009. Mittal is reported to be close to the promoters, the Miglani family, which still holds around 30 per cent in the company. ArcelorMittal also has a joint venture with the Dhamm group for a downstream unit. Will ArcelorMittal’s second coming prove any better? The global major is more cautious in its approach this time. “We are only at the MoUA memorandum of understanding (MoU) is an agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement... stage, there is no firm or final commitment from either party nor any certainty that our collaboration will result in a joint venture and the establishment of a production facility,” says the spokesperson cautiously. “We certainly hope it will, as does SAIL, otherwise we would not have signed the MoUA memorandum of understanding (MoU) is an agreement between two (bilateral) or more (multilateral) parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in situations where the parties cannot create a legally enforceable agreement....”

Clearly, ArcelorMittal has learnt from its past India experiences. Yet one question remains. By the time its new venture is ready to go on stream, a new government could possibly be in place. Will the focus then still be on ‘Make in India’?

http://www.business-standard.com/article/companies/for-mittal-frustration-gives-way-to-hope-in-india-115060101675_1.html

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