According to people familiar with the development, if completed, the move would be in line with similar technical collaborations. Large Indian steel companies such as Tata Steel and JSW Steel have recently signed with Nippon Steel and JFE, respectively, for making high-grade auto steel.
Japanese steelmakers have been quick in making their presence felt in India, which is considered to be the world’s second-fastest growing steel market after China. The e2.57 billion (about Rs 17,500 crore) CMI Group, which is credited with building the world’s first steam locomotive, is also the world’s largest supplier of equipment for a continuous annealing line, a specialised steelmaking facility that is used for making products for the auto industry.
CMI or Cockerill Maintenance & Ingenierie, has been keen on its India plans and in 2008, acquired two Mumbai-based companies, Flat Products and NT Strips and Automation.
Essar Steel and Bhushan Steel declined to comment on the issue. The Delhi-based Bhushan Steel has been open to technical and financial collaborations and had recently formed a joint venture with Japan’s Sumitomo Metals to build a 6 million tonne steel plant in West Bengal. “A collaboration to build a greenfield steel plant is different from having a technical collaboration for a specialised manufacturing line with equipment suppliers,” said a Bhushan Steel official who declined to comment specifically on any deal with CMI.
According to people connected with the industry, it typically costs about Rs 240-300 crore for building a 300,000-400,000 tonne continuous annealing line. Since size is vital in such a high-value sector that usually works on long-term supply contracts with carmakers, steel companies usually build a 500,000-tonne line within their existing units to have a smooth supply to car makers.
The move to forge collaborations for manufacturing auto steel products comes at a time when global majors such as Toyota and Honda, who have been building a robust presence in the Indian market, want to localise steel sourcing to cut costs.
India imports almost all the steel that is used to make cars. The country buys about 4-5 million tonnes of all categories of steel annually from global steel makers, of which almost three-fourths is meant for the auto industry.
Although Indian steelmakers have succeeded in making low-cost steel — Tata Steel is the world’s second lowest cost producer — the country is yet to make high-grade steel for the auto industry, especially the sort of steel that goes into car panels which account for almost 50% of the total quantity of steel that is used in a car.
Auto-grade steel is also priced at about 20-40% higher than the base-grade steel, popularly called hot rolled coil steel. Prices in the Indian steel market have been firm and were revised upwards thrice in three months. The average selling price of hot rolled coil is currently at about Rs 32,000 per tonne.
“The car makers will have to buy locally as the cost of importing steel for making cars would not be viable anymore,” said people familiar with the development. Also, with steel consuming markets shifting to Southeast-Asia, China and India, it makes economic sense to have manufacturing locations closer to the markets. Demand for steel in India is growing at 8-9%, compared with China, which is the fastest, at 12%.
Japan’s Nippon Steel, which has had a technical collaboration with Tata Steel since 2000, last week formed the joint-venture with the Indian steelmaker to make products for cars. The Indian auto industry grew at its fastest pace in 2009, compared to a sharp decline in Japan.
Then there is also demand from other consumer durables and sectors such as construction and infrastructure. India’s $1.2 trillion economy is forecast to expand 6.9% in the current fiscal year that ends in March, while countries in Europe are growing at only 2-3%.
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