Supreme Court approves ArcelorMittal’s acquisition of Essar Steel

The Supreme Court of India has unconditionally approved ArcelorMittal India Private Limited’s (AMIPL) resolution plan for Essar Steel India Limited (ESIL). Completion of the transaction is now expected before the end of the year. After completion, ArcelorMittal will jointly own and operate ESIL in partnership with Nippon Steel Corporation, Japan’s largest steel producer and the third largest steel producer in the world, in-line with the joint venture formation agreement signed by the two companies.

Despite cost and steel downturn, this may be just the right time for ArcelorMittal to enter India. ArcelorMittal is the largest steel producer in the world. In 2018, its total steel output was 92.5 million tonnes (mt), based on installed capacity of 112mt. It has a global market share of about 5% and it is the largest producer of steel in Europe, the Americas and Africa and is the fifth-largest steel producer in the Commonwealth of Independent States (CIS) region.

Essar Steel has a capacity of 10 million tonnes. The Essar plant has cost them Rs.50,000 crore and a further Rs.7469 crore to pay off the debt of stressed mills Uttam Galva and KSS Petron, in which LN Mittal held some equity.

But more importantly, this acquisition has cost ArcelorMittal time. Almost 650 days have passed since ArcelorMittal showed interest in the Essar assets, and today, with the sale nearing conclusion, the steel cycle has turned and domestic demand for the metal has fallen.

However, with a 10mt plant, ArcelorMittal will be a steelmaker to reckon with in India. Essar steel has a 10 mt per annum mill in Hazira, Gujarat. The company is a fully-integrated flat steel manufacturer with ore beneficiation, pellet making, iron making, steel making, and downstream facilities, including cold rolling mill, galvanizing, pre-coated facility, steel processing facility, extra wide plate mill and a pipe mill.

In its FY17 annual report, the firm had said that it was the only private steel mill in the country which was allowed to supply steel for warships, submarines, battle tanks and armoured vehicles. Mittal had made several attempts to get his foot in the door in India, notably with projects planned in Odisha and Jharkhand, but neither took shape.

Despite the current slowdown, India’s steel consumption growth is expected to be positive in the long-term.India currently has per-capita steel consumption of only 70kg a year, less than half the average of other developing nations. It makes sense therefore, despite the cost, for ArcelorMittal to set up shop here.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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