By Debiprasad Nayak
MUMBAI--The decision by ArcelorMittal (MT) and Posco (005490.SE)
to drop plans to build new factories in India will likely be
beneficial for domestic steel makers, as this may not lead to an
excess production capacity situation in a sluggish economy, Moody's
Investors Service said Wednesday.
Earlier this month, ArcelorMittal scrapped plans to build a
factory in the eastern Indian state of Odisha, while Posco dropped
such plans in the southern state of Karnataka, citing delays in
acquiring land and uncertainties over iron-ore supplies. These were
among the biggest-ever foreign-investment proposals in India.
Moody's said the two foreign steelmakers' decisions to shelve
their projects will mean that the overcapacity seen in China is
less likely to occur in India in the medium term.
India's current capacity utilization by its steel mills is
around 85% compared with around 72% in China in 2012.
Local steelmakers Tata Steel (500470.BY) and Steel Authority of
India (500113.BY) plan to add around 60% to their March 2013
capacities over the next three to five years, and they can now look
forward to a less crowded market, Moody's said.
The slowdown in India's economy has also affected domestic steel
consumption due to lower demand from the automobile and
construction sectors.
India's domestic steel production rose by about 4% to 19.7
million metric tons during the April-June quarter, while
consumption remained stagnant at 17.8 million tons during the
period, according to government data.
Write to Debiprasad Nayak at debi.nayak@dowjones.com
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