Mumbai: Iron ore miner NMDC expects to finalise a joint venture with Russia’s Severstal for a two million tonne steel plant by August, delaying the deal by two months, the NMDC chairman said on Wednesday.
The equal joint venture between the country’s top ore miner and Russia’s largest steelmaker was expected to be signed this month, but a market survey and separate negotiations for additional coking coal supplies are delaying the agreement.
“We want to be very sure about the product and market conditions. We are keeping August as deadline,” NMDC chairman Rana Som told Reuters.
The two firms agreed in December to build the steel plant, in the southern Indian state of Karnataka, to manufacture auto grade steel. NMDC is to supply iron ore from its nearby mines, while Severstal plans to source coking coal from its captive mines in Russia.
State-run NMDC, which is separately building a 3 million tonne steel plant at Chattisgarh in central India, is now negotiating with Severstal for additional coal supplies for the plant, NMDC’s finance head S Thiagarajan said.
“In principle, they have agreed. We are working out the arrangement. That is one of the reasons for the delay,” he said.
NMDC accounts for about 15% of India’s iron ore production and is among the few state-owned firms with “navratna” status that accords a large degree of financial independence.
Strong domestic demand
The company, which holds about a billion tonnes of proven iron ore reserves, sold 26.5 million tonnes of iron ore in the financial year that ended March. It hopes to sell 30 million tonnes in the current fiscal year.
“We have a ready market and in fact we are not in a position to satisfy the entire domestic demand,” Som said.
The company has been scouting for opportunities to boost growth, including diamond and gold mining, but has focussed on steelmaking, driven by the sharp demand for the metal in an economy growing between 8% to 9% annually.
It is building its Chattisgarh plant at a cost of Rs 15500 crore ($3.4 billion), close to its iron ore mines, and hopes the joint venture with Severstal will produce high margin, value added products for the Indian and overseas markets.
Demand for steel in India is expected to grow in double-digits, driven by rising construction of buildings and infrastructure and huge investments by global carmakers, and has drawn interest from global steelmakers.
Last year, Japan’s JFE Holdings acquired a 14.9% stake in India’s JSW Steel for $1 billion, while larger rival Nippon Steel has planned an automotive sheet steel joint venture with Tata Steel .
Top global steelmaker ArcelorMittal and South Korea’s POSCO are also awaiting approvals for large steel plants in the country.
Last week, NMDC reported quarterly net profit nearly doubled to Rs 2099 crore, beating market estimates, led by strong volumes and higher ore prices during the quarter.
It plans to spend Rs 3300 crore for capacity expansion and the steel project this year, and is counting on its Rs 17200 croree cash hoard to fund any acquisitions or investments.
Shares in the company, valued at Rs 2360 crore, closed up 0.6% in a firm Mumbai market . The stock has declined 3% so far in 2011, compared with a 9.2% fall in the main stock index for the same period.