Posco and India Near Agreement on Big Steel Mill
By GORDON FAIRCLOUGH, LINA YOON and PATRICK BARTA
Staff Reporters of THE WALL STREET JOURNAL
June 15, 2005; Page A7
South Korean steelmaker Posco said it could sign an agreement as early as next week for a $12 billion steel project in the poor but iron-ore-rich Indian state of Orissa. The deal would be the largest single foreign investment ever in India.
Posco, the world's fifth-largest steel producer, has been courting the government of Orissa for months, but Indian officials have been reluctant to strike a deal that could lead to the export of iron and steel at a time when demand for these commodities is growing in India.
A Posco spokeswoman said officials in Orissa told the company they were preparing to sign a memorandum of understanding. But she cautioned that Indian officials have indicated interest in signing at least twice before, only to pull back at the last minute.
But one Posco official involved with the project said he was confident the deal would go through this time. Orissa and the Indian central government have agreed to hold a signing ceremony June 22.
If the deal goes through, it will represent a major new investment even as the global outlook for steel is weakening as production capacity expands and demand softens.
Under the terms of the agreement, Posco would build a steel mill with an eventual annual production capacity of 12 million tons. The company would get the right to use 20 million tons of iron ore from local mines annually for 30 years to provide raw material for its mill, the Posco official said. Posco will likely need to build railroad and port facilities at the site as well, he said.
In the initial stages, the official said, Posco will be the only foreign investor in the project. But, he said, "in the longer term, there will have to be other partners." BHP Billiton Ltd., the world's largest mining company by market value, has also expressed interest in gaining access to ore from Orissa.
The ore that Posco obtains from local mines must be used to produce steel at the mill in Orissa. It can't be exported to supply Posco mills elsewhere. Posco can, however, "exchange" ore from Orissa with equal quantities of ore produced elsewhere, the official said. The company will be able to export the steel it produces at Orissa plant.
Analysts say it increasingly makes sense to relocate steel production plants closer to the source of their raw materials, especially iron ore, as transport costs rise. |
