India's steel industry steps onto world stage

There was much jubilation in India when the Tata Group, an Indian conglomerate, won a bid late last month for the Corus Group, an Anglo-Dutch steel firm. The deal catapulted the new global entity to become the world's fifth-largest steel firm.

At more than $12 billion, Tata's purchase is the largest acquisition ever by an Indian firm. The success of the takeover had Indian financial analysts celebrating more than just another superlative. The purchase signals a milestone for India's economy as it matures from an attractive investment destination to a global investor.

But perhaps more important, the Corus deal brings India's steel industry, currently the world's seventh-largest, to the forefront of the global steel market. Fueled by an accelerating manufacturing sector and a dramatic infrastructure improvement effort, India's steel sector is clocking a 10-percent growth rate.

"Now it is a two-way street," said Kamal Nath, India's commerce and industries minister at a press conference on Feb. 1. "India is not only seeking foreign investment, it is a foreign investor itself. And this trend is likely to grow."

Indian analysts say that growth rate is likely to continue. While China currently produces nearly 418 million tons of crude steel – nearly 10 times that of India – Indian steel is likely to be more cost-effective in the future. Unlike China, India's 14 billion tons of untapped iron-ore reserves can sustain domestic production of 120-130 million tons for at least 25 to 30 years if strategically exploited, analysts say.

With a dearth of iron-ore supplies in its own country, China is the world's largest importer of iron ore, bringing in nearly 300 million tons of ore from 40 countries each year. Chinese steel companies are struggling with rising global prices of iron ore.

"However, even at [India's] growth rate, it'll take a long time for India to catch up with Asia's other behemoth, China, because of the wide difference in production figures," says A.S. Firoz, a leading Indian economist and steel expert.

In coming years, India is expected to surpass the production capacities of South Korea, Russia, the United States, and Japan. Powered by domestic demand from their large populations, China and India already account for 35 percent of total world steel production – more than double that of Europe, according to the International Iron and Steel Institute (IISI). A major part of that growth is India's homegrown manufacturing sector, analysts say, which is expected to grow at 11.3 percent this year, up from 9 percent last year. The other major boon to the steel industry: The Indian government has pledged to spend $15 billion on infrastructure projects over the next decade.

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