(Adds comments from analysts, background and other details)
By Saurabh Chaturvedi and Biman Mukherji
NEW DELHI--ArcelorMittal said Wednesday it is dropping plans to
build a plant in the eastern Indian state of Orissa, becoming the
second global steelmaker after Posco to pull out of
multi-billion-dollar projects in the country this week.
Luxembourg-based ArcelorMittal, the world's largest steelmaker
by production capacity, said delays in acquiring land,
uncertainties over iron-ore supplies and deteriorating market
conditions led it to scrap the project to manufacture 12 million
metric tons of steel a year. ArcelorMittal didn't provide the
investment it planned for the plant. Tuesday, South Korea's Posco
also cited similar reasons for giving up its plans to build a
6.0-million-ton steel mill at a cost of $5.3 billion in the
southwestern Karnataka state.
These were among the biggest foreign-investment proposals in
India and the pullouts deal a big blow to New Delhi's efforts to
attract long-term overseas capital. Late Tuesday, the government
said it would liberalize foreign-investment rules in several
sectors as part of efforts to boost economic growth that hit a
decade-low of 5% in the fiscal year ended March 31.
India is talking about attracting more foreign investments, but
it is unable to keep even already-committed investments, said Deven
Choksey, managing director of Mumbai-based brokerage firm K.R.
Choksey Shares & Securities. "This speaks volumes about the
redtapism we have," Mr. Choksey said, adding that it could take
eight to 10 years for resource companies to secure various
clearances for starting operations in India.
Mining companies face major delays in getting environmental
clearances because most of their projects are on forest land and
they need approvals from state and federal governments. Getting
land is another problem as there isn't any clear policy on the
compensation to be paid to landowners and the steps to rehabilitate
them. Amendments to land-acquisition and mining rules have been
proposed to simplify the processes.
ArcelorMittal signed its initial agreement with Orissa's
government to construct the plant in December 2006, but it hasn't
been able to acquire any land for the project because of protests
by local people. Another project by U.K.-based Vedanta Resources
PLC's to mine bauxite in the state's Niyamgiri hills is in limbo
following protests that it would displace indigenous people. Posco
also plans to build a plant in Orissa and a company executive said
the state government recently finished acquiring land for the
project that had run into hurdles over pollution and the potential
displacement of local people.
ArcelorMittal plans to build two other plants in India, in the
states of Jharkhand and Karnataka, and it plans to continue with
those projects despite facing delays there too, the company
said.
"Both these companies [ArcelorMittal and Posco] have talked
about the inability to acquire land and mining leases. These are
genuine reasons as almost every project is facing constraints,"
said A.S Feroze, a steel-industry analyst.
India's steel secretary, D.R.S Chaudhary, and the industrial
adviser to the steel ministry, A.C.R Das, weren't available to
comment.
The decisions by these companies come at a time India is looking
to raise its steelmaking capacity to 300 million tons a year by
2025 from around 100 million tons currently, a target that is
looking unrealistic now.
Despite possessing one of the most abundant iron-ore deposits,
steelmakers have been facing a crippling shortage of the
most-important raw material due to mine closures to probe illegal
mining in some of the most-productive regions. India, which until
about a couple of years back was the world's third-largest iron-ore
exporter, is expected to turn into a net importer of the raw
material this fiscal year.
The project withdrawals have also been influenced by a slowdown
in the global economy, which hurt steel prices. Prices in China
have declined 14% this year, while those in Europe have dropped
11%.
ArcelorMittal has been selling assets in order to reduce debt
and closing blast furnaces in order to adjust its output to anemic
steel demand, particularly in Europe where it suffered a $4.3
billion write-down on its operations. In an attempt to curb costs
following the 2008 financial crisis, it halted all investments in
new steel-production capacity although it decided to continue
investing in iron-ore projects given their higher return on
investment. A recent pickup in Brazilian steel demand, however,
prompted the company to restart capital expenditure in new
steel-production capacity in Brazil last month.
Posco's earnings have dropped sharply over its past two
quarters, in part because of sluggish demand from China.
--Alex MacDonald in London contributed to this article.
Write to Biman Mukherji at biman.mukherji@dowjones.com and
Saurabh Chaturvedi at saurabh.chaturvedi@dowjones.com
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