Foreign firms to buy stake in small steel firms, value-addition
New Delhi: Anticipating a steady long-term growth in India, foreign steel makers are interested in acquiring stakes in small firms and forge joint ventures for value addition of raw materials.
"Some prominent overseas steel makers are keen to buy Indian steel story that ensures steady growth for next 30 years. They are keen to buy stakes in steel firms here which have 2-3 million tonnes per annum capacity," Ernst & Young's National Leader (Mining and Metals) Anjani Agrawal said.
At the same time, they are also interested in entering the value addition space hoping to test the investment climate in India without committing significant investments.
Agarwal said these companies may even go for a minority stake to enter the supply chain and test the environment.
"Such strategic investments in smaller steel mills can actually be beneficial for both the investor and the local company. The local partner gets both funding and technology while the MNC gets a foothold in a growth market for several years to come," he said.
Agrawal said India's demand for steel is poised to go up to around 200 million tonnes per annum in next 10 years from a little over 77 million tonnes per annum in 2012, calling for massive investment for capacity expansion. In 2013, it is set to clock at least around six percent growth.
"However, it is not sure if India will be able to match up with installed capacity as greenfield expansions are facing a lot of difficulties. This may escalate imports," he said, adding this might put a cap on the price increase by the domestic steel producers, thereby putting pressure on the margins.
Agrawal, however, said value-addition of raw materials is a relatively better opportunity with lesser investment which also intellently is supported by the government.
"The pelletisation and beneficiation space is attracting investment. This also will help address volatility in raw material prices," he said
Iron ore prices skyrocketed to USD 151 per tonne in the recent past from USD 87 a tonne in September last. It is now hovering at around USD 148 per tonne.
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