?India to attract more global steel players?

The growing demand for steel in India has not only put pressure on companies to source raw material assets but has also seen foreign players entering India to capture the growing market. James Forbes, Global Metals Leader, PricewaterhouseCoopers, told FE?s Smita Joshi Saha he sees more global majors coming to India through partnerships with Indian steel companies.

Has there been adequate investment in the mining space given the financial crisis?

Most of the deals that happened last year were for raw material acquisition. Valuations have come down as many steel firms don?t have cash and so there isn?t too much competition for such assets like there was in 2008. Well, 2010 is still a difficult year to pick. I think in January and December, we saw the world steel production drop for the first two consecutive months and with that there will obviously a lower demand for raw materials. So I think we?ll still see some more activity. We also have to see how iron ore prices pan out and how the BHP-Rio Tinto deal shapes up. Steel associations, across the world, are concerned about this deal as it will polarise the market and one player will have additional control over the pricing on one of the key raw materials.

Where are the opportunities available currently?

We see major activity in South America and Australia. Two very interesting opportunities are India and South Africa because both face similar problems of infrastructure.

The Church of England recently sold its stake in Vedanta. How should metal and mining firms address such issues?

Opinions vary from region to region. In India, firms allocate profits to trusts, non-profit organisations and development programmes and one sees a very fine example where a company takes a very holistic and family approach. So the concern is training and providing the essentials of family life like religious institutions, housing complexes, and most important is safety and also addressing the climate change issue.

What role will the metal and mining sector play in China and India?

It?s interesting that in 2009 only two countries in the world saw a production increase?China around 13% and India around 3%. Last year, China consumed more than the US did, which is interesting. In India, steel industry will play a central role and, therefore, we are going to see some more players coming in either as a joint venture partners or investors.

Do you see majors like Nippon and Posco making it their global manufacturing hub?

I don?t think they will make it their manufacturing hub but I think certainly it?s a very important piece. I don?t think there is a hub anymore but India will be a key area for them.

Do we see more players coming in to India?

I think there will be more players but who they would be is hard to say. Those who are here will capture that initial share until we see the next level of expansion. I think the question we would raise is whether we end up seeing much Chinese investment in India? People are afraid of the effect that China has globally on the steel market. China is so big and their industry is so fragmented that they have to do a lot of work in their own area. So it?s interesting to see if China is going to come to India and try some JVs before their own domestic industry is consolidated.Their market is so hot so would they just stay there and worry about raw materials before they move out?

Do you see oversupply in India with domestic players expanding and China dumping?

If the production here grew by 3% obviously demand increases by that number or more. India is certainly the hot spot for consumption and is going to attract interest when the rest of the world is doing poorly. I think there is room for over supply. The investment by the government in infrastructure is one of the most successful and this one of the reasons why the industry did well last year.

What do you think of the strategy global players will adopt in India?

The strategy is moving towards the market for finished products. Players are looking at staying on here because over the long-term it?s a very sound region for investment. When you look around the world we still have a number of mills that are shut down and much more capacity than demand. So it will be difficult for people to find investment opportunities when you have 10 plants and three of them are closed. Whereas when you come here, the industry is running at its capacity and the real issue is pushing out or moderating imports.