Steel rising in the east: JSW, AM/NS India waiting to set foot in Odisha

Two steel majors will be expanding their presence in the iron ore-rich region just as global raw material prices touch new highs

In 2005 and 2006, the steel industry was booming and a slew of memorandum of understan­ding (MoU) was signed for greenfield projects — adding up to 150 million tonnes — to be set up in the mineral-rich states of Odisha, Jharkhand and Chhattisgarh. The list included marquee global nam­es such as Posco and ArcelorMittal, but neither of the projects saw the light of day for delays in acquiring land and securing mines.

A decade and half later, with the commodity cycle back at peak levels, the region is seeing renewed interest for setting up new integra­ted mega steel plants. Two of Ind­ia’s top six producers — Arcelor­Mittal Nippon Steel India (AM/NS India) and JSW Steel — are waiting to set foot in Odisha with a total capacity of 28 million tonne. To be sure, there is no rush of MoUs as with the 2005-6 boom as significant consolidation has taken place through assets under the Insol­vency and Bankruptcy Code (IBC).

On March 4, AM/NS India sign­ed an MoU for a 12-million tonne integrated steel plant at an investment of Rs 50,000 crore, in the presence of ArcelorMittal executive chairman Lakshmi Mittal and Odisha Chief Minister Naveen Pat­naik. Dilip Oommen, chief executive officer, AM/NS India, said the move was in line with the company’s commitment to contribute to infrastructure-led growth. “Signing an MoU with the Odisha government to set up a greenfield project is also part of our long-term strat­egy that gives equal importance to raw material security,” he added.

Odisha’s rich iron ore reserves make it a natural draw for invest­ors. The distribution of iron ore is somewhat like this: about 59 per cent of haematite ore (superior grade) deposits are found in Odi­sha, Jharkhand and Chhattisgarh while about 92 per cent magnetite ore deposits occur in the southern sector, especially in Karnataka. Odisha accounts for the lion’s share of haematite ore at about 35 per cent, available in the districts of Dhenkanal, Jajpur, Keonjhar, Kora­put, Mayurbhanj, Sambalpur and Sundergarh. About 3.5 tonne of raw material is required for producing a tonne of steel — iron ore accounts for 50 per cent of it (the other major input, coking coal, is mostly impor­t­ed). With global iron ore prices at a 10-year high, the access to local iron ore is an invaluable asset.

For Mittal and Odisha, it could well have been a deja vu moment. Since 2005, the global steel major had made repeated attempts at gaining entry into the Indian steel market through greenfield projects — first in Jharkhand, then Odisha and Karnataka. The global steel major finally got a foothold in the Indian market in December 2019 with the acquisition of Essar Steel jointly with Nippon Steel, India’s largest IBC recovery to date.

The location of AM/NS India’s proposed greenfield plant in Odisha is Kendrapara —ab­o­ut 35 km from its pellet plant in the port of Paradeep (pellets are a raw material feed for the former Essar Steel plant in Hazira, Gujarat).

About 200 km from the pellet plant is the company’s captive iron ore block, Thakurani, in Keonjhar district, that it won in a state government auction of 19 mines last year by agreeing to pay a premium of Rs 107.55 per tonne.

AM/NS India is also evaluating participation in the strategic disinvestment of Neelachal Ispat Nigam Ltd (NINL), jointly owned by central and state PSUs. It has a 1.1 million tonne unit producing pig iron and billets in the Kalinganagar Industrial Complex, Duburi, in the south-east of the state.

Driving this eastern surge is a change in the mine allocation policy from a nomination basis to auction — de-risking the business model to an extent. So it is not just AM/NS that paid a huge premium for mines; Sajjan Jindal-owned JSW Steel bagged four mines by agreeing to pay 95-110 per cent premium at the same auction.

JSW’s mines, with reserves of over a billion tonnes, are about 200 km from the 2.79-million tonne Bhu­shan Power & Steel plant (BPSL), the asset it won under the IBC process, in Sambalpur district in northern Odisha. India’s third-largest steel maker hopes to take charge of BPSL shortly (litigation over attachment of assets by the Enforcement Directorate is pending before the Supreme Court).

“In the steel business, you have to look at ei­ther being close to the market or raw material. If you have to move iron ore, the freight impact is large,” explained Jayant Acharya, director - commercial & marketing, JSW Steel.

The company’s captive mines in the Koida/Barbil region are about 325 km from Jagat­singhpur in Paradeep, the site for its proposed greenfield plant. JSW Steel signed an MoU for a 13.2 million tonne plant in 2017 and land acquisition is underway. The mines are 185-200 km from BPSL plant.

“From a freight point of view, it would be economically more viable to access the northern market from the east versus accessing it from south or west,” explained Acharya. JSW’s main plants are in Dolvi (Mah­arashtra) and Vijaynagar (Kar­n­ataka). The north and west are India’s main steel-consuming markets.

Odisha accounts for 20 per cent of India’s steel output. Naveen Jindal-owned JSPL’s plant in Angul was one of the few greenfield plants of significant capacity to take off in Odisha in 2010 apart from Tata Steel’s Kalinganagar in 2016 and the two plants from the Bhushan stable (in Sambalpur and Dhen­kanal between 2005 and 2007).

Eastern India accounts for a little over two-thirds of India’s steel output. This includes Tata’s Steel’s 110-year-old 12-million tonne plant in Jamshedpur and government-owned Steel Authority of India with five integrated plants in the region — two in Bengal (Durgapur and Burnpur), and one each in Ch­hattisgarh, Odisha and Jharkhand.

The question is whether these expansions and new plants will be en­ough to meet demand. JSPL ma­n­aging director V R Sharma points out, “India needs more steel plants to achieve the target of 300 million tonnes capacity.” So far, the largest steel plants in India at a single location are Tata Steel’s Jam­s­h­e­dpur and JSW Steel’s Vijaynagar with a capacity of 12 million tonne each.

Though India produced 111 million tonnes in January-December 2019, ICRA senior vice-president Jayanta Roy believes that there could be a shortage of steel in India in three or four years given the ant­icipated demand growth. “There is little visibility on sizeable fresh capacity in the near term except maybe JSW Steel’s Dolvi plant, NMDC’s greenfield plant and Tata Steel’s Kalinganagar plant,” he said.