SAIL-Arcelor JV stuck on 30-year clause
Steel Authority of India’s reluctance to join a non-exit 30-year contract has delayed its joint venture (JV) with Arcelor Mittal for specialised steel. The JV has been in the works for three years but the two steel majors are yet to sign a formal agreement. Arcelor Mittal wants a long-term binding agreement, at the end of which the two companies could take a call on whether to continue with the venture. JYOTI MUKUL & MEGHA MANCHANDA write
Government-owned Steel Authority of India’s (SAIL’s) reluctance to join a non-exit 30-year contract has delayed its joint venture with ArcelorMittal for specialised steel.
The joint venture has been in the works for three years but the two steel majors are yet to sign a formal agreement.
“These joint ventures take time because many commercial issues are involved. Since the JV would be for a very long duration, you have to be very careful as to what the present challenges are and what market would be there so that the joint venture remains profitable throughout its tenure,” said a senior official with direct knowledge of the matter.
When contacted, a SAIL spokesperson did not comment.
ArcelorMittal wants a long-term binding agreement, at the end of which the two companies could take a call on whether to continue with the venture.
“Auto grade steels are a purview of very select companies in the world, it’s a highly protected market and once we have developed this particular product, the company that is giving the technology wants to ensure that aren’t very quick exits because these technologies take a lot of time to develop and a lot of money is involved,” said the person quoted earlier.
About 300 acres is required for the plant but the person said land was not an issue. Proposed sites for the 3 million-tonne joint venture have been identified. The Union
ministry of steel expects the more than $1billion partnership to be finalised in the next few months.
“The two companies are in the process of vetting the JV agreement. Otherwise, most of the things have been sorted out to the satisfaction of both the parties,” Union Minister of Steel Birender Singh told Business Standard.
The unit is likely to be set up in Gujarat or Maharashtra. Since the unit will manufacture
automotive steel, the Pune-Chakan belt in Maharashtra and Sanand in Gujarat are among the auto hubs being considered.
The proposed joint venture will sign a longterm purchase agreement with SAIL’s Rourkela plant for sourcing hot-rolled steel strips. Through value addition at the joint venture plant, automotive steel will be produced indigenously.
ArcelorMittal is the world’s largest steel producer. With the number of passenger vehicles likely to grow from around 3.5 million units to more than 7 million units in the next 10 years, India is forecast to become the world’s third-largest automobile-manufacturing nation by 2026. Driven by rising infrastructure development and growing demand for automotives, Indian steel consumption in 2017 was about 88 million tonne.
ArcelorMittal and SAIL had signed a memorandum of understanding (MoU) in May 2015 to explore the possibility of setting up an automotive steel-manufacturing facility under a joint venture.
A joint working group for the project was set up following the MoU, and it completed the major part of the project’s feasibility report some time ago.
The joint venture is on the lines of a similar collaboration between Tata Steel and Nippon Steel & Sumitomo Metal Corporation. They have collaborated to produce high-grade cold-rolled automotive steel in India through a joint venture company, Jamshedpur Continuous Annealing & Processing Company Pvt Ltd (JCAPCPL).
The facility, set up at ~27.50 billion within Tata’s Jamshedpur works, includes a continuous annealing and processing line (CAPL) with an annual capacity of 600,000 tonnes.
JCAPCPL, formed in early 2012, started production in 2014. It sources steel from Tata Steel facilities. Tata has a 42 per cent market share of domestic automotive steels.
JSW Steel, the country’s largest steel producer, has a similar tie-up with JFE Steel Corp of Japan for automotive steel at its Vijayanagar plant.