India urges POSCO to use local raw material for auto steel plant

By Sankalp Phartiyal

NEW DELHI (Reuters) - New Delhi urged South Korean steelmaker POSCO last month to buy local raw material for its automotive steel plant in western India, two government sources said, trying to cut imports and boost domestic production of high-value steel.

The steel ministry's request to POSCO came amid other efforts to safeguard local mills, including import taxes on steel products and a floor price on overseas purchases. New Delhi also initiated probes into the possible dumping of cheap steel into India by China, Japan and South Korea.

POSCO primarily produces high-tensile auto grade steel from its facility in Maharashtra state and has been importing most of the raw material - hot-rolled (HR) coils - from Korea, helped by a free trade agreement between New Delhi and Seoul.

But POSCO's costs rose after India imposed a "safeguard" import duty of up to 20 percent starting September last year.

POSCO told the steel ministry, according to a government draft agenda for a meeting on the issue that was seen by Reuters, that the raw material for their plant was not available in India and needed to be given an exemption from the taxes.

The steel ministry in an April meeting requested POSCO to use HR coils produced by Indian steel companies JSW Steel, Essar Steel and Tata Steel, two steel ministry officials said. The meeting was attended by executives of all of the companies.

Buying the raw material locally would keep POSCO out of the anti-dumping net and also help them secure raw material faster, one of the government sources said.

POSCO India could not be reached for immediate comment and a spokesman in Seoul said the company was already using Indian HR coils as part of efforts to diversify sourcing. He also denied that India's steel ministry had made any such request.

Indian steelmakers say their mills have the technology to produce the raw material POSCO needs and that they are willing to work with the Korean company to meet their requirements.

"It makes tremendous sense for a cold-roller or a downstream processing unit to have [raw] material close to domestic [mills] so that they can service the orders better, because of the better lead time," said Jayant Acharya, commercial and marketing director at JSW Steel.

(Reporting by Sankalp Phartiyal; Additional reporting by Hyunjoo Jin in SEOUL; Editing by Tom Hogue)