India to Become POSCO’s Global Growth Hub
By Kim Hyun-cheol
Staff Reporter
Following last year, POSCO plans to advance into broader overseas markets through building more facilities in its foreign units. India, among them, is expected to be a key post to lead the steel maker's global advancement.
This year, the steel giant is looking to break ground for an integrated steel mill in Orissa, the ninth-largest state in India.
In an ambitious plan to push its boundaries outside Korea, POSCO plans to embark on various projects including plants in Southeast Asia and a processing center in Turkey. This year's biggest is expected to take place in India.
POSCO's Indian project has picked up steam, after the years-long process to secure a site for the facility was completed.
The Indian government gave POSCO, the world's fourth-largest steel producer, the final nod last month to its request to turn a forested part of the site into industrial land. The project has been in stagnation for three and half years, with 74 percent of the site labeled as undevelopable forest.
POSCO signed a memorandum of understanding with the Government of Orissa in 2005 for the construction, as well as development of iron ore mines in the state.
President Lee Myung-bak's visit to India this week is expected to give the project a strong boost.
In the wake-up to the effectuation of the Korea-India Comprehensive Economic Partnership Agreement (CEPA) as of Jan. 1, Lee departed Sunday for India with a group of local business envoys as his first overseas trip of the year, before heading for Switzerland to take part in the Davos Forum 2010.
During the Indian trip, Lee called for cooperation in POSCO's Orissa project in a summit with Indian Prime Minister Manmohan Singh. The outlook for the project is highly positive as New Delhi is sending signals that it is be committed to the project, including giving the environmental clearance for POSCO last month.
``We are moving ahead with the project. Both the central and state governments are committed to the project, but we would like to move ahead much faster,'' Gautam Bimbawale, Joint Secretary of the Indian Ministry of External Affairs, was quoted as saying in local Indian newspapers last week.
POSCO CEO and Chairman Chung Joon-yang, accompanying Lee to India, will check the overall circumstance for operating mills there and request finalization of the timetable for the project.
In the Orissa project, POSCO plans to gain the mining rights for iron ore nearby the steel mill site as well as the plant construction.
The plan, however, had been stalled for three and half years due to local administrative and legal procedures before the final approval for land clearance. The company must also pay compensation and transfer some 460 residents at the site to new accommodation before the ground-breaking, which POSCO says will be executed as quickly as possible.
Indian courts will decide on the issue of POSCO's mining rights next month, and POSCO is confident of a favorable ruling.
POSCO expects construction will start around September or October, after wrapping up all necessary procedures.
Lee's visit is expected to offer momentum for the project. At an investor relations meeting in Seoul earlier this month, Chung said the President ``will be of great help through his trip.''
A solid relationship between the two countries will help with the construction as planned, and the presidential visit to India is significant in that regard, POSCO said.
``Unlike Korea, construction projects in India are prone to various difficulties even after breaking ground. Cemented mutual ties between the two countries will be pivotal in solving problems in the process,'' a POSCO spokesman said.
Carried out in three stages, the new mill will produce 4 million cubic tons of steel annually in its initial stage of operation. When complete, its annual production will expand to 12 million tons.
Other than the Orissa mill, POSCO plans to carry out several more projects in the country. Teamed up with world's No.1 steel maker ArcelorMittal, POSCO is seeking to build two new steel mills in southern India. It intends to invest $7 billion on a mill in Karnataka state.
Construction of a new continuous galvanizing line plant with an annual capacity of 450,000 tons will be started in Maharashtra State in September, scheduled to be completed in May 2012.
Launching of overseas supply chain management (SCM) units and manufacturing facilities will also continue in its efforts to beef up production outside Korea. POSCO, which operates 42 processing centers and distribution units in 12 countries as of 2009, will add another SCM center to its four Indian units next year with the completion of the latest in Chennai in June next year.
Indian Market in Limelight
South Korea is the seventh largest investor in India, with most of its conglomerates including Hyundai, Samsung and LG operating businesses there. The advancement of Korean companies, however, still has a way to go: Currently some 360 Korean companies are in business in India, a smaller number than in many other Asian countries.
The Korea-CEPA is expected to be a huge turnaround in the trade ties between the two countries.
Korea and India officially signed the pact in Seoul on August 7, making Korea the first member nation of the Organization for Economic Cooperation and Development to ink a trade agreement with India. The two countries began negotiations in March 2006 and concluded the pact after three and a half years.
The CEPA is a de facto free trade agreement (FTA). The term was adopted to stress comprehensive economic relations including merchandise and services trade, investment and economic cooperation.
One of the leaders in emerging markets, India, with a population of 1.2 billion, now has a growing influence in the global economy as the world's fourth-largest market after the United States, China and Japan. In recent years, its economic growth has been maintained above 8 percent annually.
As well as expansion in cooperation and bilateral trade, the CEPA is expected to help Korean companies make inroads into the huge Indian market as India has yet to sign major trade pacts with Asian contenders, China and Japan.
Under the bilateral agreement, 85 percent of South Korean exports, including Korea's 10 major export goods such as auto parts, steel, petrochemicals and electronic goods, will be subject to tariff reduction or elimination. In return, Korea will eliminate or cut tariffs on 93 percent of import items from India.
Both Korea and India are expected to benefit from the CEPA in their complementary industrial edges.
While India's manufacturing sector is in its developing stage, its knowledge-based services, including information technology, have sufficient competitiveness on global markets. Consequently, the deal will raise the influx of Indian scientific experts, particularly in information technology, into Korea
Also, as the Korea-India CEPA calls for investment barriers to be substantially lowered to liberalize investment in most manufacturing businesses, the deal is expected to boost Korean companies' investment in India's promising manufacturing and service sectors.
Steelmakers are also possible beneficiaries of the pact, along with exporters of car parts and petrochemical products, because the CEPA will free them from frequent threats of import restrictions and non-tariff barriers, such as anti-dumping duties, the industry expects.