Introduction of FINEX technology would be a game changer in the Indian steel industry.
South Korean Steel Company, POSCO’s possible joint venture with Mesco Steel is being closely watched by the industry. Though, it is premature to say anything about the future of the project, many analysts believe the proposed 0.6 MnT per annum steel project has the potential to change the dynamics of the Indian steel industry.
If the project gets materialized, POSCO’s patented FINEX technology will be used in India for the first time (for steel making) through which the new plant would be able to produce steel by utilizing the abundantly available low grade Iron ore fines in Odisha and without importing the costly coking coal, thus bringing down the cost of production drastically.
The proposed project is among the several plans the cash strapped Korean steel maker is currently undertaking to turnaround its financial health. Apart from this, the company is planning to sell controlling stakes in its several other projects like POSFINE & POSCO-Uruguay. The company is also considering to sell 49% stake in its LNG terminal located in the southwestern city of Gwangyang. Through the financial restructuring, the Korean Company aims to raise $1.95 billion by 2015.
The steelmaker is struggling with declining sales and swelling debt due to declining demand for steel products, especially from China, and the company’s high spending on its several corporate takeovers and increasing cost of its new projects.
Though the proposed project is still in its initial days but its significance is being calculated by POSCO and its Indian ally as well as its competitors. Through the project, POSCO would be able to start manufacturing locally and integrate with its processing plants already set up in several locations in India. Currently, POSCO India imports less than 2 MnT of Steel which is processed at its centers in Gurgaon, Hyderabad, Chennai & Talegaon (near Pune).
The South Korean company is struggling to start its mega steel plant in Jagatsighpur district for the last 10 years due to several reasons mainly the land acquisition problems and statutory clearances. However, for the plant it may not have to face land acquisition problem given the land requirement for the small capacity project and large areas of land Mesco has in its Kalinganagar plant area.
Sourcing raw material should not be a problem for the new plant because Mesco has its own Iron ore mines at Roida in Barbil (Keonjhar) and at the same time large stocks of low grade Iron ore fines stashed at several other mines in the adjoining Keonjhar district. Earlier, low grade fines were exported in the absence of suitable technology in the country for making steel utilizing low grade fines. POSCO’s FINEX technology would be a solution to this.
For Mesco, this will be a great opportunity to acquire a superior technology (FINEX) plant which would fulfill its dream to become a full-fledged integrated steel company. The company has plans to reach 3.5 MnT pa steel making capacity through two phases; in the first phase it has plans to add 1.5 Mnt pa with an investment of INR 30 billion.
On the other hand, POSCO’s competitors are also busy calculating the impact the small but technically advanced project would bring. The FINEX technology does not require coking coal to make steel and uses low grade Iron ore fines. Cost of coking coal contributes about 25% of the total cost of production of steel. Also, increased duty (2.5%) on imported coking coal in the recent budget, coking coal will become costlier and so the cost of production of steel. However, since the new plant would not require coking coal, the steelmaker will get the cost advantage. According to a rough calculation, for an integrated steelmaker, the current cost of production of one tonne of steel is around INR 22,000-23,000 and for a non-integrated steel maker it is around INR 28,000. Whereas, using FINEX technology POSCO would be able to make steel at INR 18,000-19,000 only i.e. a cost advantage of INR 5,000-6,000.Thus, the likely scenario could be: while (as an integrated plant) Tata would make steel at INR 22,000-23000,POSCO at the same location would be able to make steel at around INR 18,000 per tonne.
Few years back, POSCO has planned a 3 MnT pa plant in joint venture with public sector steel maker SAIL. The plan was that POSCO would set up the plant in SAIL’s surplus land at Bokaro using FINEX technology and utilize SAIL’s Iron ore fines. However, the JV could not materialize owing to difference in the ownership pattern because the South Korean company wanted majority stake in the project.
POSCO has the patent right of FINEX technology which it has developed with support of the government (of Korea). So, for transfer of the technology it would require Korean government’s nod which is least possible if it does not has a controlling stake in a project. The Mesco JV will also have to pass through this hurdle.
Till then it is a watch & watch for everyone.