SAIL sees Posco JV sealed by mid-December

SAIL sees Posco JV sealed by mid-December

New Delhi: Steel Authority of India Ltd, the largest steel producer in India, expects to finalise a joint venture with World No.3 Posco by mid-December, its chairman said on Thursday.

The state-run firm has been in talks with South Korea’s Posco to set up a 1.5 million tonnes steel plant near SAIL’s existing facility at Bokaro in eastern India.

Posco, which has faced delays for another $12 billion steel plant in east India, is expected to take a 51% stake and transfer advanced technology into the SAIL JV.

“Next two months, it should be definitely be happening," chairman C.S. Verma told reporters. He added that the eventual capacity of the JV will be 3 million tones per annum.

SAIL also hopes to finalise a draft propsal for a joint venture with Japan’s Kobe Steel, Verma said. He declined to give details but media reports have said the two firms are in talks to set up 0.5 million tonne steel plant in India.

He said SAIL was not in talks with Arcelor Mittal, the world’s largest steelmaker, for any joint venture.

Overseas steelmakers are eyeing demand from India’s burgeoning automobile market, which is set to record double-digit growth as the economy expands, prompting global carmakers to boost investment in the country.

In July, Japan’s JFE Holdings Inc, the world’s No.5 steelmaker, said it will spend about $1 billion for a 14.9% stake in India’s third largest steelmaker JSW Steel Ltd , in an attempt to gain a foothold in the Indian market.

Larger rival Nippon Steel also plans to form an automotive sheet steel joint venture with world No.7 Tata Steel Ltd.

SAIL, with annual capacity of about 15 million tonnes, is the largest steel producer in India, but lags Tata Steel’s capacity of 30 million tonnes that is mostly contributed by its Corus unit in Europe.

The federal government plans to raise roughly $8.5 billion from share sales in 2010/11, part of its plan to divest stakes in roughly 60 companies over the next few years, as India looks to cut its fiscal deficit.

Q2 Profit Dives

SAIL’s net profit in July-September, its fiscal second quarter, fell to Rs1,090 crore ($245.3 million), compared with 16.63 billion a year ago. Net sales rose to Rs10,603 crore from Rs9,944 crore.

A Reuters poll of 15 brokerages had estimated quarterly profit at Rs1,236 crore on net sales of 105 billion.

“The main reason (for fall in profit) is that coking coal prices went up substantially- besides, there has been a provision of Rs572 crore on wage revision," Verma said.

Verma said he expects steel prices to remain stable in November. “Volatility in iron ore does not affect us. And now we have seen that coking coal prices have come down from $225 per tonne to $209 per tonne," Verma said.

The $500 billion global steel industry is cautious on profit outlook as booming Chinese demand slows, and iron ore and coal costs rise.

Earlier this week, ArcelorMittal disappointed markets with its fourth-quarter profit estimate and Japan’s Nippon Steel said it is likely to struggle to meet its full-year forecast.

SAIL’s up to $1.9 billion follow-on public offer, in which the government will sell a 5% stake, and SAIL will issue an equal amount of new shares, will hit the market in early January or February, Verma told reporters.

Ahead of the results, SAIL shares closed down 4.9% at Rs202.7 in a Mumbai market that fell 0.3%. The stock, valued by the market at $18.8 billion, has declined nearly 16% in 2010, compared to a 14% rise in the main index.