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Ahmedabad: Japanese conglomerate Mitsui and Co. Ltd’s plans to set up a $1 billion integrated steel complex in Gujarat in partnership with Indian company Ruchi Group has been put on hold due to the ongoing downturn in the Indian economy, a top official said.

The project was seen as Mitsui’s big-ticket investment in the world’s third-largest market for steel—and a market where its rivals ArcelorMittal and Posco have some sort of presence.

The new project was to be executed under the joint venture company Indian Steel Corp. (ISC).

Speaking on the sidelines of a product launch in Ahmedabad on Monday, Umesh Shahra, managing director of ISC, said the company would revisit the project once the economy revives, hopefully by next year after elections. “When we planned the project about three years ago GDP (growth) was at 8.5% and steel consumption was (growing) about 10-12%. Today the scenario has changed. Steel consumption has come down to 4-5% and GDP is at 5.5%. We have put the project to set up a steel complex in Kutch on hold for now," he said.

Mitsui and Ruchi group, the promoters of Ruchi Soya, created ISC in 2005. The Japanese group has a 20% stake in the company and its Indian partner holds the rest. ISC has steel cold rolling and galvanizing plant at Bhimasar in Kutch with an annual capacity of 600,000 tonnes.

ISC trebled the capacity of this factory in June last year. According to Shahra, the company’s current revenue is around 3400 crore, and it will touch 5000 crore by 2015.

ISC initially wanted to build the new steel complex in a special economic zone, according to a proposal submitted to the Gujarat government. The steel plant was planned to have a production capacity of 1.2-1.5 million tonnes (mt) in the first phase, according to a state government official familiar with the matter. An expansion plan to raise the capacity of the steel complex to 3-4 mt in the second phase was also on the cards, added this person who asked not to be identified.

The state government had earmarked 1,000 hectares in Tagdi village in Kutch for the project.

Last year, the company dropped its plans to set up the project in a special economic zone because “global demand weakened while the domestic growth story was positive," according to Shahra.

He declined comment on the source of iron ore for the project.

Steel consumption in India increased in the first quarter at the slowest pace in at least five years as demand for automobiles waned amid an economic slowdown, according to a 10 July Bloomberg report. Demand rose 0.2% to 17.8 million metric tonnes in the three months ended 30 June from a year earlier, the report said, quoting initial data from the steel ministry. Production climbed 3.9% to 19.7 million tonnes.

Shahra said Mitsui is interested in increasing its stake in the joint venture and that “it could even be an equal partnership for the new steel complex".

Getting started on steel projects in India hasn’t been an easy journey for foreign companies. Posco’s $12 billion steel project in Odisha, billed as the largest foreign direct investment in the country, has been delayed by more than seven years due to local protests. In July, Posco pulled out of a $5.3 billion steel mill development project in Karnataka due to delays in receiving iron mining rights and local opposition in acquiring land.

About a month later, ArcelorMittal, the world's largest steel maker, said it abandoned plans for an $8.5 billion steel plant in eastern India. The company said on 17 August that it decided to scrap the steel plant in Odisha after a 7-year delay in acquiring land. The company said it was still pursuing two other steel plant projects in Jharkhand and Karnataka states

“Foreign companies were not in a very good shape when the Indian economy was conducive for steel business. Now when the Indian economy is in a bad phase, their plans will naturally get deferred or they may even exit," said Sanjay Jain, an analyst at Motilal Oswal Securities who tracks the steel sector. While new companies are battling land acquisition problems, another major hurdle is sourcing iron ore, said Prakash Duvvuri, head of research, OreTeam, a mining and metal information website.

“While there is a lot of iron ore available in the country, having it at the right place and of the right quality is a problem. Gujarat, for example, may be one of the best locations to set up a steel plant, but it does not have iron ore mines," Duvvuri said over phone.

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