* Separate court ruling on mining rights expected in H1 2012
* POSCO says overseas expansion critical
* Steelmakers rushing into India on rising auto, home demand (Adds details, comments)
By Hyunjoo Jin
SEOUL, Jan 31 (Reuters) - India’s decision on Monday to approve construction of a $12 billion steel mill by South Korea’s POSCO (005490.KS) will help the world’s No.3 steelmaker raise exports and gain access to low-cost iron ore, analysts said.
Along with the world’s top steelmaker ArcelorMittal ISPA.AS and Nippon Steel Corp (5401.T), POSCO is eyeing a footprint in India’s high-growth market, with global demand expected to slow as mature economies continue to struggle to recover from the economic downturn.
Asian mills are also attracted to India’s rich iron ore deposits, the world’s third-largest, as they seek to reduce their reliance on Australia and Brazil and the associated freight costs of shipping the steelmaking ingredient.
“The biggest attraction of India for global steelmakers is its strong growth potential and its iron ore reserves,” said Hana Daetoo Securities analyst Kim Jung-wook.
India approves $12 bln POSCO mill [ID:nSGE70U06C]
India’s corruption ranking/ Ease of doing business:
Q+A on POSCO Orissa plans [ID:nSGE70U07F]
POSCO’s 12-million-tonne steel project, first announced in 2005, is the centerpiece of its bid to expand overseas amid rising domestic competition and as it seeks to increase self-sufficiency in sourcing steelmaking ingredients. POSCO currently sources most of its iron ore from Australia and Brazil.
Domestic rival Hyundai Steel Co (004020.KS) is boosting output aggressively to increase supply for affiliate Hyundai Motor Group, the world’s No.5 auto group that includes Hyundai Motor Co (005380.KS), and a major client of POSCO.
The approval enables the Orissa government to immediately start acquiring land for POSCO.
“We welcome the decision by India’s environment ministry. We will proceed with stalled steps such as land acquisitions,” a POSCO spoeksperson said.
But POSCO still has a long way to go to complete the Orissa project, since it has yet to receive a separate court ruling on iron ore mining rights from India. POSCO expects that to be decided by the first half of 2012 in order for construction to start later that year.
An Indian company that also bid for the mining concession has filed a lawsuit against the Orissa government, contesting the decision to grant a concession to the South Korean steelmaker.
“With the decision POSCO has cleared a major hurdle for its overseas expansion, but the most important part is gaining mining rights. Without mining rights, there’s no strong merit for POSCO to build a steel plant in India,” said Kim at Hana.
The project has been delayed by environmental issues and protests by local residents, who say the plant will disrupt their largely agricultural and forest-based livelihoods.
Steel companies are rushing to invest in India to tap the country’s rich iron ore deposits, but have faced a series of obstacles such as land acquisition problems, environmental clearance and regulatory issues.
ArcelorMittal has announced plans to set up plants in India, but has so far been unable to acquire land.
Demand for steel in India is expected to rise 14 percent this year, outpacing the 5.3 percent global growth rate, fuelled by surging construction of buildings and infrastructure and massive investments by global carmakers, according to the World Steel Association.
POSCO is among several corporations, including Vedanta Resources Plc VED.L, to have come under the scrutiny of India’s environment ministry, putting the department in conflict with others in the government who are pushing for rapid industrialisation. [ID:nSGE65N05B]
In October, Ramesh threw out plans by London-listed Vedanta to expand its alumina refinery over environmental concerns, but this week Ramesh said he was willing to conditionally reconsider Vedanta’s expansion plan.
Ramesh has described POSCO’s project as “fundamentally different” from Vedanta’s plans. (Reporting by Hyunjoo Jin; Editing by Chris Lewis)