After JSW’s takeover of Ispat, Sajjan Jindal is the largest steel producer, beating even SAIL, a remarkable achievement. On the other hand, Lakshmi N Mittal’s struggle to get a proper foothold in India has become even more difficult
The takeover of Ispat Industries by the Sajjan Jindal-controlled JSW group has fundamentally altered the equations in the steel industry in India. For one, Sajjan Jindal has achieved the unthinkable. He has emerged as the largest steel producer in India (after his Vijaynagar expansion is complete in 2011), beating Steel Authority, something that even Tatas have not been able to achieve. At the same time, the dream of Lakshmi Mittal, estranged brother of Vinod and Pramod Mittal (the promoters of Ispat Industries) to control a large steel business in his motherland has become a bit more difficult.
For the last few years, ArcelorMittal has been trying to gain an entry into India primarily by setting up a greenfield venture. It tried to set up a project in Jharkhand but this made no headway and eventually it shifted the project to Karnataka, where things are not going smoothly either. The acquisition of land itself was supposed to be completed this year, but this is not likely to happen soon.
What happens to Lakshmi Mittal's Indian foothold, Uttam Galva? This too would be a problem now. In September last year, ArcelorMittal managed to get a foothold in India by buying a stake in Uttam Galva, which makes galvanized steel. However, it was too small a move for a giant like ArcelorMittal and there was much speculation whether Uttam Galva was the stepping stone for Lakshmi Mittal, even as he continues to pursue the greenfield ventures. Now, with Ispat Industries having changed hands, Lakshmi Mittal's stepping stone has now turned shaky.
That's because Uttam Galva sources its material from Ispat Industries' hot-rolled coil plant. However, sourcing the raw material from Ispat is going to be a problem, now that JSW has entered Ispat. Not only will JSW stop selling raw material to Uttam Galva for competitive reasons, but it may also go for forward integration to use up the raw materials for value-added products.
All this leaves ArcelorMittal exactly where it was a few years ago-with virtually no significant operations in India. In fact, ArcelorMittal was the frontrunner in the race to acquire Ispat Industries even a week or two ago. However, so intense is the dislike Vinod and Pramod Mittal have for Lakshmi Mittal, they ensured that he would not gain control over Ispat under any circumstances. It is this rivalry that Sajjan Jindal managed to exploit and enter Ispat.
What about LN Mittal's greenfield plan? The fact is that over the last 20 years not a single greenfield, large-scale steel project has come up in India except for Bhushan Steel in Orissa. It is extraordinarily hard to set up a steel project in India primarily because of the large number of licenses and linkages that are needed to secure land, iron ore and coal. It is precisely the problems of securing resources that led a frustrated Lakshmi Mittal to move from Jharkhand to Karnataka, where too his company has made little headway.
It remains to be seen how other players in the steel industry react, but with no greenfield projects likely to come up and no other major plants up for sale, it is going to be an uphill battle for Lakshmi Mittal, one of the world's richest industrialists, to gain a proper foothold in his country of origin. In all this, Sajjan Jindal has stolen a march over many other steel magnates. He now controls the largest steel capacity, larger than even the Steel Authority of India (SAIL).
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