NMDC, Severstal to set up steel plant in Karnataka

India’s largest iron ore producer, NMDC, is set to sign a memorandum of understanding with Russia’s third largest steelmaker, Severstal, for a plant in Karnataka.

The deal, entailing an initial investment of $1 billion from Severstal, would mark the biggest Russian investment in the non-defence sector as also the first Russian investment in the steel sector. This was confirmed by NMDC chairman and managing director Rana Som.

The plant size is of two million tonnes, but is likely to be scaled up to five million tonnes. The Karnataka plant, for which NMDC already has an MoU with the state government, would produce auto grade and electrical steel.

The MoU could be signed as early as Friday between NMDC chairman and Severstal chief executive officer, Alexey Mordashov. The plant will probably be one of the lowest cost steelmakers, given that it will have access to iron ore from NMDC and coking coal from Severstal.

The $13 billion Severstal has large coking coal deposits. Severstal Resources is one of the biggest Russian mining companies and manages all of Severstal’s mining assets — two iron ore mining complexes (Karelsky Okatysh and Olcon), coking coal complex in USA (PBS Coals), and an exploration project Severstal Liberia Iron Ore in Western Africa.

NMDC, on the other hand, produces around 22 million tonnes of iron ore —from Bailadila in Chhattisgarh and Donimalai in Karnataka.

Volatile raw material prices has been one of the biggest concerns for steelmakers in the past few years. Coking coal and iron ore are the two key inputs for steel, accounting for more around 85 per cent of the raw material cost. Moreover, the proven reserves of prime coking coal in India are only 4.6 billion tonnes and the quality is not suitable for steelmaking. Hence the industry has had to depend on imports.

The Karnataka joint venture is NMDC’s second steel project, the first was Chhattisgarh, which has a capacity of three million tonnes.

Severstal would join a host of foreign steel producers that have been vying for a presence in India, where steel consumption is growing at 10 per cent. Steel producers from Japan (Nippon, Kobe Steel and JFE) have latched on to domestic steel majors. The world’s largest steel producer, ArcelorMittal, however, is going alone in India while South Korea’s Posco has kept both options alive.