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Fitch: Essar May Give ArcelorMittal India Foothold; Cost Unclear

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A successful bid by (AM, BB+/Positive) for would give exposure to the Indian steel market, which is likely to be the fastest-growing in the world over the next two decades, say and CRU. However, is a in the Indian market, and is likely to require substantial investment to improve operating efficiency and make higher production volumes cost effective. The credit impact of a winning bid would also depend upon the transaction amount and the structuring of the deal, which are currently unknown.

is forecast by CRU to be the largest contributor to growth in global over the next 20 years. Strong economic growth potential, urbanisation and a fast-growing population - which the UN forecasts at 1.5 billion by 2030 - will drive the rise in India's is just 61kg per capita compared with China's 647kg, but CRU forecasts this to rise toward 200kg over the next two decades.

is the third-largest globally. CRU forecasts output will reach almost 200 million tonnes by 2031 from 101 million in 2017, due to debottlenecking, capacity additions and greenfield projects. However, weaknesses remain in the domestic industry, related to the availability of raw materials, energy supply, and the overall environment. has significant quality ore reserves, but lacks coking coal and natural gas, most of which are imported.

Power costs are also high compared with international levels.

Government has supported the industry through minimum import prices, anti-dumping duties, improved railway logistics, and steps to resolve bad debt, but there have been impediments to projects. For example, land acquisition was a key obstacle for AM in previous attempts to set up a

would provide an alternative route into the market. It is India's fourth-largest steel producer, based on nameplate capacity of 10 million tonnes. Its shipped 5.6 million tonnes in 2017. However, Essar is also among India's highest-cost producers, with hot-rolled coil (HRC) averaging USD485/tonne in 2017 - over USD100/tonne more than the lowest-cost producer, according to CRU cost estimates. From a global perspective, Hazira would sit in the 2nd-3rd quartile of the cost curve.

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First Published: Mon, April 16 2018. 15:51 IST