Posco-Adani steel project could add to India’s oversupply, sources say

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Posco and the Adani Group’s recently announced steel project will likely add to the steel oversupply in India until demand picks up sufficiently to consume the surplus volumes, market sources told Fastmarkets this week.

“While steel demand in India is expected to increase until 250 million tonnes per year eventually, it really depends on whether this project is started up and how economic development in the country is at the point of time,” an Indian steel trader in Singapore told Fastmarkets on Thursday January 20.

South Korean steelmaker Posco and Indian conglomerate Adani Group said on January 13 that they were working together to build a green, environmentally friendly greenfield integrated steel mill at Mundra, Gujarat, at an investment cost of $5 billion.

The steel mill will utilize Posco’s steelmaking and research and development technology, as well as use renewable energy resources and green hydrogen. The Adani Group will provide expertise in energy and infrastructure.

Sources said more clarity on the project is needed before any conclusions on its effects on the Indian and wider Asian steel markets can be made, although the capacity of the new steel mill is said to be less than 5 million tonnes per year and “may not have a big impact” on the market.

“It depends a lot on what are the final products produced. For example, whether they are long steel, flat steel, or metallics. It could also be that it produces pig iron to ship to China and Asia amid the strong decarbonization drive going on there,” the steel trader said.

Posco already runs a 1.8-million-tpy Posco-Maharashtra rerolling mill, which produces 0.17-2.30 millimeter thick cold-rolled coil at widths of 800-1,800mm for the automotive market, as well as four processing centers in Pune, Delhi, Chennai and Ahmedabad.

This is also just another steel project amid a multitude of other capacity expansion in India, such as those announced by other integrated steelmakers.

JSW Steel plans to expand its steelmaking capacity by 12 million tpy to 36.5 million tpy by 2024, while Tata Steel wants to double its steelmaking capacity to 40 million tpy at its Angul, Kalinganagar and Jamshedpur steelworks.

ArcelorMittal Nippon Steel India (AMNSI) is also seeking to increase its steel production capacity to 18 million tpy from 8.6 million tpy, while Japanese producer Nippon Steel - a joint venture partner in AMNSI - said it planned to build a second steel mill as part of AMNSI’s expansion.

“But of course, this will be impactful only if the plant is completed. A greenfield project takes time and there are many regulatory approvals needed. Can this memorandum of understanding (MOU) turn into reality?” a seller source close to an Indian integrated steelmaker said on Thursday.

“This will make the competition field more crowded of course, especially when west India is already dominated by two major integrated steelmakers,” he continued.

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