Raigad/Talegaon (Maharashtra): Posco’s steel plant in Orissa, hailed in 2005 as the biggest overseas investment in India, has since languished on account of delays in environmental approvals and land acquisition.
But in sharp contrast with other foreign companies that haven’t been able to overcome such setbacks, the South Korean company’s India strategy appears to be thriving.
The company is looking to open new steel processing centres in Karnataka, Madhya Pradesh and Gujarat after starting five such centres and a manufacturing unit as it expands in India.
“India is a big country and we continuously find opportunities to expand volumes,” said Cheol Min Kim, chairman and managing director of Posco’s India Pune Processing Centre Pvt. Ltd. “We are continuously studying market conditions… to invest more and more.”
The head of the Talegaon processing plant that aims to produce 260,000 tonnes of special steel this year said Posco is looking to build similar units near automobile hubs. He did not give a time frame.
“There is the Bangalore area and the Indore area, and there are so many others,” he said. In Gujarat, a new processing centre would make it Posco’s second in the state.
Rs.64,300 crore today) steel plant—India’s largest foreign direct investment—in 2005, but the company hasn’t gained control of the 4,004 acres of land in Jagatsinghpur in Orissa needed to start construction. In the meantime, Posco has embarked upon an ambitious downstream expansion on the expectation that when the integrated steel plant comes up, it will be the final, critical piece of its India strategy.
“The Indian market has a potential for automotive materials,” said In Gweon Lee, general manager (corporate relations) at Posco India’s head office in Gurgaon. “That is why Posco has been investing in this segment through processing centres, galvanizing unit and electrical steel unit.”
He said the company has invested approximately $326 million in the galvanizing unit at Raigad and processing centres in several states. It’s spending approximately $845 million in a cold-rolled steel mill and an electrical steel unit, also in Raigad, he said.
Posco’s processing plants are near Delhi (120,000 tonnes), Hyderabad (24,000 tonnes), Chennai (120,000 tonnes) and Talegaon (260,000 tonnes), all of which are a part of Posco Korea’s marketing arm. It also has a joint venture processing plant, Posco Poggenamp Electrical Steel Pvt. Ltd, in Gujarat. At these centres, big machines turn steel coils into neat squares and outer body parts of automobiles.
Posco’s galvanizing unit in Raigad has been in production since May 2012 on a 160-acre plot adjoining the Western Ghats. Its electrical steel unit, at the same location, is on schedule to be ready in October.
A cold-rolling mill will be set up in Raigad in June 2014.
Posco also operates a logistics company with a warehouse in Dighi port in Maharashtra and a steel showroom in Bangalore.
The manufacturing unit and the processing centres have been set up to add value to the steel coils imported from Posco’s plants in South Korea. Posco imported 1.34 million tonnes (mt) steel in 2012, 1.1 mt in 2011 and 1.15 mt in 2010 from its plants in Pohang and Gwangyang in South Korea.
“The galvanizing unit was ready one month before deadline,” said Jong Kwan Lee, director of human resources and finance at Posco Maharashtra Steel in Raigad. “It will not be seen as successful until the other two units—cold-rolled coil and electrical steel units— are also ready on their scheduled date.”
The focus on downstream expansion will hold the company in good stead in the long run, said Rakesh Arora, managing director and head of research at Macquarie Capital Securities (India) Pvt. Ltd.
“It is a good strategy they have adopted and they will take some market share even though the volumes are low,” Arora said. “Largely, they are trying to find a market for their own production in South Korea.”
When the network grows to a substantial size, it would fit in with the steel plant in Orissa, Arora said, though he sees that taking 10 years. At that point, Posco could bring steel costs drastically down.
“They are already keeping up the pressure on domestic manufacturers,” he said.
Posco has doggedly held on to its original strategy of building an integrated steel pant in Orissa, although it has adapted its other projects in step with the environment.
“Initially, Posco was trying to gain a foothold in India from the upstream side (in Orissa). But they changed the strategy. Finally, we set up a downstream mill first,” said Jong Kwan Lee.
“This is a kind of a small success story in India. Finally, we will make a link between upstream and downstream, this is a kind of synergy plan,” he added.
The manufacturing unit is expected to produce 270,000 tonnes of galvanized steel this year, which could rise to 450,000 tonnes by 2014, with plans for exports to Turkey and the Middle East.
Jong Kwan Lee feels anxious about completing the cold- rolled mill and electrical steel mill on deadline owing to Indian conditions at the desolate industrial zone where other mills have yet to move in. Still, the track record suggests that the units will be ready on time.
Posco has a market share of more than 19% in India’s total imports of over 7 mt, which comprise mainly special steels. With other foreign companies entering India, global rivalries will be played out on local soil.
China Steel Corp. will set up an electrical steel unit in Gujarat that will be functional by October, The Hindu Business Line reported last year citing company officials.
Japan’s Nippon Steel has a joint venture with Tata Steel Ltd for setting up an annealing and processing line in Jamshedpur. Japan’s JFE Steel Corp. and JSW Steel Ltd have come together for special steels.
For now, Posco is seeking to get an early advantage and is already catering to General Motors Co., Tata Motors Ltd, Volkswagen AG, Fiat SpA and Mahindra and Mahindra Ltd for automotive steel, and Siemens AG, Crompton Greaves Ltd, ABB Ltd, Alstom SA, Schindler, LG Corp. and GE Electric Co. for electrical steel.
While the foreign companies are expected to compete in the special steels segment, the Indian firms will continue to cater to the mass steel market where around 73 mt of steel is produced.
According to Arora, the price of imports is comparable to locally produced special steels “otherwise no one will buy them”. What is helping Posco is lower import duty of 3.4% under a free trade agreement between India and South Korea, he said.
Many of Posco’s clients are located close to its plants, allowing the South Korean company’s executives to hold discussions on the shop floors of their customers.
“We make a solution for our clients in the design and early production stages,” said Dae-bum Kim, general manager (marketing) at Posco-India Pune Processing Centre.
Posco’s experience with its downstream projects has been in complete contrast with that of the upstream plants. It’s a lesson the South Koreans have taken to heart.
“We moved silently here and it worked. In Orissa, we moved noisily and it is stuck,” said Dae-bum Kim. “If we keep replicating the small things, one day it will become big.”