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Chinese firms equipped to prosper in India steel sector

2014-10-09 11:16 China Daily Web Editor: Qin Dexing

Pace of economic development and infrastructure expansion offers a wealth of opportunities

India's steel capacity is expected to soar in the next 15 years, driven by the country's growth in infrastructure construction, which will create a huge market for Chinese equipment manufacturers, said a senior executive of Tata Steel Ltd.

T.V. Narendran, managing director of Tata Steel, said India now has 80 million metric tons of steel production capacity and that it will grow to 300 million tons in the next 15 years in tandem with the pace of economic development.

"We will need Chinese equipment and technology suppliers for our steel industry's growth, since China has a mature steel industry after decades of development," he said.

It is accepted in the steel industry that it costs about $1 billion to add 1 million tons of capacity, and equipment accounts for 30 percent of that cost, which means India will create a market valued at $66 billion for steel production equipment in the next 15 years.

"Normally, India's steel companies buy equipment from Europe. Since many European companies are producing in China, we can purchase directly from China in the future," said Narendran.

Tata Steel will strengthen its sourcing relationship with China in the next few years.

Narendran said about 10 percent of the company's equipment - mostly coking ovens and reheating furnaces - comes from Chinese suppliers, and Tata Steel's intention is to increase the amount to 30 to 40 percent in the next three to five years.

"To achieve that goal, we will form a team of 10 to 15 people, based in Beijing or Shanghai, to source in China," he said.

Narendran said that in the past 20 to 25 years, China's infrastructure construction developed rapidly, which created huge demand for steel and brought a "golden age" for China's steel mills.

However, China is now facing severe overcapacity in the steel industry, which has been hit by weak demand and continued losses.

Narendran said India's steel industry will continue to grow on the strength of the government's decision to focus on infrastructure construction.

According to Tata Steel, steel consumption is expected to rise in India by about 6 percent to 7 percent annually.

"For Chinese steel companies facing overcapacity problems in their domestic market, it can be a good idea to invest in India," said Narendran, adding that India's steel market is open to foreign investors.

James Zhan, president of Tata Group China, said Narendra Modi had been to China four times before he became India's prime minister and he knows China well.

"India is an important partner for China in the manufacturing and infrastructure sectors, where China has rich experience and excess capacity," Zhan said. "China's capital and capacity offers potential cooperation opportunities for the two countries."

However, investing in India's steel industry is not an easy task.

Zhan said land acquisition is one of toughest areas during investment, and it can take a very long time to accomplish.

"It is even a tough problem for Tata Steel, not to mention Chinese companies," he said.

And language is an obstacle.

"Up to 30 percent of Indian people speak English. Even though an increasing number of Chinese speak English nowadays, most senior executives of Chinese companies still depend on translators, which brings difficulties in the practical work," Zhan said.

Xu Lejiang, chairman of Baosteel Group, one of China's biggest steelmakers, said that India will follow a path similar to China's in terms of industrialization, which means growing steel demand from India in future years.

He said that against the backdrop of excess steel capacity in China, it is feasible for Chinese steel companies to expand overseas.

Developing regions, including the Middle East, Africa, Southeast Asia and Eastern Europe all offer potential opportunities for Chinese steel investors, he said.

Facing weakening domestic demand, most Chinese steel companies have experienced big growth in exports this year.

During the first eight months, China exported 56.4 million tons of steel products, up 34.3 percent year-on-year. Net steel exports grew to a record high, rising 42.7 percent to 49.72 million tons, according to the China Iron and Steel Association.

Qu Xiuli, deputy secretary-general of the CISA, said during the China Steel Technology and Economy Forum last week that steel exports will continue to grow in the second half of 2014.

She mentioned that major Chinese steel companies, including Baosteel and Hebei Iron and Steel Co Ltd, are increasing their presence overseas by establishing industrial production bases.

China's biggest steel producer, Hebei Iron and Steel, plans to build a mill with 5 million tons of capacity in South Africa. That plan was announced by the company on Sept 12.

The company signed a deal to take a 51 percent stake in a venture with the Industrial Development Corp of South Africa and the China-Africa Development Fund to build the mill, which will become China's biggest overseas steel project.

The company plans to start construction in 2015, with first-phase production to begin in 2017.

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