Essar Steel likely to join race for United Coal

Seven others, including JSW Steel, are already in fray.

Essar Steel may bid for US-based United Coal Company, joining seven other bidders, including rival JSW Steel, sources close to the development said. However, JSW Steel, India’s third largest steel-maker, expects to finalise the deal by August.
 

BLACK GOLD

• Essar Steel is examining a possible bid and a final decision will emerge soon 
• Bidders are scrambling for captive raw material resources because of the soaring prices of coal
• Valuations for United Coal, which has reserves in excess of 165 million tonnes, is likely to be $1.5-2 billion

An Essar spokesperson said, “As a group, we keep looking at growth opportunities in the businesses that we are in. However, it is not our policy to comment on any specific proposal.” As of now, Essar is not among the seven parties that have responded for United Coal, but sources said there is still time to join the race.

Valuation for United Coal, the North American met coke company, which has reserves in excess of 165 million tonnes, is likely to be $1.5-2 billion. United Coal produces in excess of 6 million tonnes of coal, which could be expanded to 10 million tonnes, the sources said.

Bidders are scrambling for captive raw material resources because of the soaring prices of coal. Coke prices over the past year have increased from $250 a tonne to $700 a tonne.

For Essar, the bid could make sense because it is consolidating its position in North America. In 2007, Essar acquired Minnesota Steel, with estimated reserves of over 1.4 billion tonnes of iron ore in the Mesabi iron range in Northeast Minnesota, and Canada’s Algoma Steel, which has a capacity of 4 million tonnes.

However, the only captive raw material source for Essar is the proposed Minnesota project and that is for iron ore. Essar’s coking coal requirements are currently limited to Algoma, which has long-term contracts. In India, the company uses the electric arc furnace, which does not require coking coal.

However, Essar has an expansion plan to take its capacity in India to 9 million tonnes from 4.6 million tones. Since this capacity increase would take the blast furnace route, the company would require coking coal.

Essar also plans to set up steel-making facilities in Trinidad and Tobago, Vietnam and eastern India. Once Essar’s expansion plans in India and other parts of Asia and North American are executed by 2012, the company’s capacity would go up to 20-25 million tonnes.

Essar’s recent bid for West Virginia-based Esmark Inc, however, did not materialise after Russian steel major Severstal stepped in and made a counter offer with the support of the United Steelworkers Union.