Steel mills cannot relocate like a shop that closes due to poor business. Once a company invests heavily in a location, it must produce and sell steel there for a long time. Therefore, examining where steel companies invest can provide insights into which countries they expect to profit from in the future.
Recently, Japanese steel companies have been expanding their production facilities in India, with JFE Steel and Nippon Steel leading the way. These two companies are distinct entities, partnering with different firms in India. JFE is collaborating with Indian steelmaker JSW Steel, while Nippon Steel is working with Dutch steel giant ArcelorMittal.
On October 23, JFE Steel announced plans to double the annual crude steel production capacity at the Sambalpur steel mill in Odisha, India, from 4.5 million tons to 9.5 million tons. Crude steel is the intermediate product before processing into steel products. The company plans to implement new blast furnaces and rolling equipment by 2030.
The rationale behind this investment lies in demand forecasts. The World Steel Association recently projected a steel demand growth rate of 0.9% for Japan and 7.9% for India this year. For next year, the forecasts are 1.7% for Japan and 8.0% for India. While Japan is expected to recover, the pace is markedly different from that of India. For steel-selling companies, it makes sense to invest more resources in a rapidly growing market.
India's growth rate is not the only noteworthy aspect. The projected steel demand in India for this year is 172.4 million tons, expected to rise to 186.2 million tons next year, indicating an annual increase of 13.8 million tons. Although these figures are projections rather than actual results, they illustrate the backdrop for steel companies expanding their operations in India.
Building homes requires rebar, and laying railroads necessitates rails. Steel plates are also used in automobiles and refrigerators. The World Steel Association cites infrastructure construction, private real estate, and manufacturing growth as key drivers of demand in India. This indicates that steel is sought after in both construction sites and factories, differing from investments focused solely on one booming sector.
While increasing local production facilities entails significant burdens, shipping steel from Japan is another option. Establishing a factory is just the beginning; securing raw materials, power, labor, and transportation networks is essential for stable operations. Increasing local production despite these challenges can be seen as a strategy to respond closely to Indian customers' orders and establish a long-term market presence.
The name JFE has given to its Indian operations reflects this intention. The company positions the Sambalpur steel mill as its 'third integrated steel mill' following its facilities in eastern and western Japan. This signifies a commitment to making it a major production hub rather than merely securing another overseas investment.
An integrated steel mill encompasses the entire process from extracting molten iron from iron ore to reducing impurities and producing steel, followed by rolling it into sheets. This type of mill has a broader production scope than facilities that merely cut or surface-process steel products. JFE announced its joint venture plans last December, proposing an investment of 157.5 billion rupees (approximately 270 billion yen). The joint venture, in which JFE and JSW each hold a 50% stake, was finalized in March of this year.
Competitor Nippon Steel has also been investing in India through its partnership with ArcelorMittal, operating AM/NS India. This venture aims to increase the annual crude steel production capacity at the Hazira steel mill from approximately 9 million tons to 15 million tons. Nippon Steel's investment plan for related production facilities, announced in 2022, was around 410 billion rupees (approximately 730 billion yen).
AM/NS India is also pursuing the acquisition of port and power-related facilities alongside its expansion. Steel mills require ports for importing raw materials and exporting products. If electricity supply is unstable, production can be disrupted. Establishing infrastructure outside the factory is as crucial as investing in blast furnaces and rolling equipment. Directly producing steel overseas entails numerous responsibilities.
POSCO is also expanding its production base in India. The company already operates a cold-rolled and galvanized plant in Maharashtra with an annual capacity of 1.8 million tons, processing steel products for use in automobiles and other applications. It also has steel processing plants in Delhi and Chennai.
In April of this year, POSCO signed a joint investment agreement with JSW Steel in India, each holding a 50% stake. This venture aims to construct an integrated steel mill in Odisha with an annual crude steel production capacity of 6 million tons. While the existing cold-rolled and galvanized plant processes steel products, the new steel mill will include the entire process from extracting molten iron from iron ore. The existing plant is operational, while the new integrated steel mill is still in the construction phase.
Both POSCO and JFE Steel have partnered with JSW Steel in India, while Nippon Steel's partner is ArcelorMittal. As South Korean and Japanese companies secure production bases in India, Indian firms are also leveraging their technology and capital to expand their operations. It remains to be seen how the investments of South Korean and Japanese steel companies will impact the competitiveness of Indian firms.
However, merely projecting increased demand does not guarantee investment success. JFE's new facility is targeted to commence operations by 2030. After completing construction and stabilizing production, the company must sell the increased output. As multiple companies expand production capacity, competition for securing customers may intensify. There is often a significant time gap between projected demand growth rates and the actual profits companies realize.
Steel mills cannot be built hastily after orders come in. Securing land and establishing facilities takes considerable time. If companies wait to confirm rising demand before acting, other firms may have already captured customers. This context explains why Japanese steel companies are investing in India now, as they prepare to establish production bases for future steel sales.
Of course, not all companies investing in the growing Indian market will profit. Local steelmakers are also increasing their production capacities. Market conditions may change during the construction of new plants, and if supply outpaces demand, price competition could become fierce. Japanese companies must secure not only factory sites but also a steady customer base for the steel produced there.
POSCO faces similar competitive challenges. Steel companies that have competed in South Korea and Japan are now expanding their production bases in India in partnership with local firms. Simply entering the Indian market does not guarantee an advantage. They must meet the quality demands of automotive companies, deliver products on time, and generate profits in the process. Establishing a factory overseas and growing a business there are two distinct endeavors.
The trend of Japanese steel companies moving to India is also relevant for South Korea. As Japanese firms increase their customer base locally, it will impact the volume available for South Korean companies. This is why the South Korean steel industry must closely monitor the scale of Japanese investments and their joint venture partners. The plants Japanese steel companies are building in India will serve as a foundation for steel sales for decades to come. POSCO must not only welcome the growth of the Indian market but also proactively respond to the movements of Japanese steel companies to remain competitive.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.