ArcelorMittal and Posco are leading $80 billion in planned spending in India that would vault the country ahead of Japan as the second-biggest steelmaker. Standing in the way are farmers and their water supply.
The farmers refuse to move from irrigated land in three states that hold more than half of India’s reserves of iron ore, a key material to make steel. That’s stymied Prime Minister Manmohan Singh’s ambitions to more than triple India’s steel capacity to 232 million metric tons.
“We’re not going to allow the government to take the land and water and give them to Posco,” said Prasanth Paikare, a spokesman for opposition group Posco Prathirodh Sangram Samiti that says it represents 25,000 farmers. “The government has promised us land at a new location but there is no good land available in the state now and there won’t be enough water for agriculture,” he said in Bhubaneswar, the capital of Orissa state.
The farmers’ concern about water for crops has delayed plans by ArcelorMittal, Posco and at least five rivals to benefit from a steel market that has expanded more than 55 percent since 2005 as Indian imports of the metal tripled in the same period. Posco’s proposal to build a $12 billion steel plant in Orissa has stalled for five years as the South Korean company failed to persuade farmers to move.
“Repeated delays have left investors concerned about whether Posco can make it,” said Im Jeong Jae, who helps manage $26.3 billion of assets, including shares of the world’s third-biggest steelmaker, at Shinhan BNP Paribas Asset Management Co. “India is very important because it has the best growth potential after China for steel demand and Posco can also source iron ore and raw materials there.”
The latest hurdle is an environment ministry report due this month on the impact of the Posco project. Chief Executive Officer Chung Joon Yang has since announced investment plans in Indonesia and Vietnam, as it lagged behind Chinese steelmaker Baosteel Group Corp.
The 160 million tons of steel capacity planned in India would consume 640 billion gallons of water a year, based on average consumption of U.S. steel mills in a U.S. Department of Energy paper. That’s enough to provide enough water for drinking and cooking for 133 million people in India for a year, according to figures from the government.
That level of water consumption would yield 1 million tons of rice a year, which at today’s price of $299 a ton would fetch 0.3 percent of the value of the steel produced and be enough to feed 9 million people in India for a year, based on the United Nations Food and Agriculture Organization consumption estimates.
Land and Water
“Posco wants our land, it wants our water,” said Makar Kandi, 75, who sustains a family of eight from a one-acre plot on which he grows betel leaves in Orissa’s Dhinkia village. “Agriculture is our only means. We’ll have no livelihood.”
India increased annual steel output by 34 million tons since 2005, compared with 219 million tons by China, the biggest-producing nation.
A ton of hot-rolled coil, a benchmark steel product, sells for about $685, compared with $299 a ton for a common variety of rice in India.
ArcelorMittal, the world’s largest steelmaker, faces delays for a $10 billion mill in Orissa and in Jharkhand state. Projects by Tata Steel Ltd., India’s biggest maker of the metal, are faring no better in the two states and in Chhattisgarh.
Iron Ore Attraction
According to an agreement with Jharkhand, Luxembourg- based ArcelorMittal would have access to 20 million tons of iron ore annually for 30 years. That’s enough to raise its self- sufficiency in the raw material by 33 percent. Iron ore prices have gained in two out of three quarters this year.
“Securing iron ore assets has become very important for the steel companies as prices both in the contractual as well as spot markets have been very volatile,” Elora Sahoo, an analyst at Dhanlaxmi Bank Ltd., said in Mumbai. “Having their own iron ore assets will help companies hedge against market price movements and control the cost of production.”
ArcelorMittal is now seeking to secure land at a new location in Jharkhand, said spokeswoman Mandakini Sud. There has been “good” progress in convincing locals, mostly people engaged in non-agricultural activities, to give up land, she said.
“With over 60 percent of India’s population dependent on the monsoons for livelihood, there’s population concentration and serious competition in areas with water,” Rahul Jain, an analyst at RBS Equities India Ltd. said in Mumbai.
What’s making the case worse for Posco is the declining rainfall in the Jagatsinghpur district where it’s planning its mill. Rain during the June-September monsoon period, needed for agriculture, has fallen 26 percent from 2007 to 2009, according to data from the country’s weather department.
That forced farmers to compete with manufacturers including Vedanta Resources Plc and Hindalco Industries Ltd. for water from the Mahanadi river. Posco plans to secure water through pipes from the Jobra dam on the river.
“Opposition to the project is unfounded,” Posco India Ltd. General Manager Simanta Mohanty said. “We will not use local water. There’s enough water available from Jobra.”
The steelmakers in June begun exploring sites in the southern state of Karnataka, which has the country’s second- biggest iron ore deposit. The catch? Lack of water.
“The state has decided to acquire dry and barren land, which gives little or no returns to the farmers,” said V.P. Baligar, industry secretary of Karnataka state. “On such land, water is an issue and we are trying to address it.”