Mumbai: The world’s largest steel maker, ArcelorMittal, said it will delay a $20 billion (around Rs99,800 crore) plan to build two factories in India because of the global recession and difficulties in securing mines and licences.
The plants, planned with an initial capacity of 6 million tonnes (mt) each, will be deferred by at least two years to 2014 and their sizes may be cut, Vijay Kumar Bhatnagar, chief executive officer of the India unit, said on Wednesday in New Delhi.
While the government has allotted plots in Orissa and Jharkhand, land acquisition has yet to be completed, he said.
Steel makers are shelving new projects and reducing production as the global recession slashes sales of cars and homes, weakening international steel demand.
Luxembourg-based ArcelorMittal said on Tuesday it will close a facility in Indiana that makes steel bars for the auto industry.
“Globally steel companies are trying to conserve cash to beat the recession,” said Rakesh Arora, an analyst at Macquarie Group Ltd. “ArcelorMittal is delaying its plan because in a few years global production is expected to realign with demand.”
ArcelorMittal fell as much as 3.4% to €19.37 and traded at €19.85 at 2.45pm in Amsterdam. The shares have risen 18% this year.
Hot-rolled steel prices plunged by more than half from a record $1,068 a tonne in July as the slowing global economy cut sales of automobiles, appliances and homes. ArcelorMittal has reduced global output by 45% as demand collapsed.
The company in October 2005 said it would set up a factory with a final capacity of 12mt in Jharkhand and announced another plant of the same size in neighbouring Orissa the next year. While the initial sizes may be cut, there will be no change to the final planned capacity, Bhatnagar said on Wednesday.
Jharkhand, Orissa and Chhattisgarh account for 70% of India’s coal reserves and 55% of its iron ore, according to McKinsey and Co.
Like ArcelorMittal, plans by Posco, Asia’s third biggest steel maker, to set up a factory in India have yet to take off. Land disputes and delays in allocating mining licences have prevented the South Korean company from starting a 12mt steel plant in Orissa for the past two years.
ArcelorMittal and competitors including US Steel Corp. may exceed debt-to-earnings ratios set by their creditors, JPMorgan Chase and Co. said in a 12 March research report. ArcelorMittal, with about $8.4 billion of debt maturing this year, has the largest debt due in the short term, analysts led by Michael Gambardella said in the report.