Arcelor-Mittal is in advanced talks with Shipping Corporation of India (SCI) to form a global shipping JV. The venture is aimed at helping the world’s biggest steel company cut costs in the transportation of iron ore and steel from one end of the world to another.
People familiar with the development said senior SCI officials and Arcelor-Mittal have already had a few rounds of discussions, and a memorandum of understanding is expected to be signed soon. S Hajara, chairman and managing director of Mumbai-based SCI refused to comment, while a spokesperson for Arcelor-Mittal did not respond to an email on the issue.
But sources said the talks are in an advanced stage and some details of the JV have already been agreed upon. For instance, both partners will hold 50% each in the venture, which will be registered in India. SCI will get a large captive cargo ready for transportation. The JV will use SCI’s ships for this purpose.
For Arcelor-Mittal, transporting millions of tonnes of products across the world has always been a costly exercise. The company produces 110m tonnes of steel at 26 locations across the world. Chartered ships carry raw materials like iron ore and coking coal from producer countries such as Brazil to steel mills in Europe and other parts of the world. Finished steel is then exported to consuming markets.
The steel giant guzzles around 175-180m tonnes of iron ore annually, most of which is sourced from Brazil. The company also requires huge quantities of coking coal — around 60-70m tonnes at the rate of 0.6 tonne for every tonne of steel produced.
As of now, Mittal Shipping has managed all charter deals with its limited capacity. The huge jump in volumes after the Arcelor-Mittal merger makes the task of finding a cheaper way of transportation important. LN Mittal, the billionaire steel magnate, believes that a shipping company with its own fleet could help bring down total transportation costs substantially, especially when the bulk/break-bulk charter market is on an upswing.
Also, SCI’s expertise in the international charter market could add value to the venture. India, which has emerged as an international ore supplier of late, could start supplying iron ore as well if the transportation costs are brought down substantially.
Shipping analysts, however, said that even if the JV is incorporated now, it will have to wait for a while before buying ships since the asset prices are ruling high in the sale-and-purchase (S&P) market. The JV will have to concentrate on spot or short-term charters for the time being, till the asset prices fall.
Mr Mittal, who announced two identical 12m tonne projects in Orissa and Jharkhand, is also keen to export ore from India, said sources.
If the JV is formed, it will be Mittal’s second such venture with a public sector undertaking in India. It had formed a JV with ONGC — ONGC-Mittal Energy Services (OMESL). Set up in the tenure of former ONGC chairman Subir Raha, OMESL was to acquire oil and gas properties, besides trading and shipping oil and gas, including liquefied natural gas (LNG).
SCI has struck a new route for growth through joint ventures with the private sector. Mr Hajara had earlier said that SCI’s growth is expected to come through JV’s, since buying second-hand ships through JVs will be easier. Being a PSU, SCI faces restrictions for buying second-hand assets. It has to seek government approval before placing orders for new ships.
http://economictimes.indiatimes.com/articleshow/2007831.cms
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People familiar with the development said senior SCI officials and Arcelor-Mittal have already had a few rounds of discussions, and a memorandum of understanding is expected to be signed soon. S Hajara, chairman and managing director of Mumbai-based SCI refused to comment, while a spokesperson for Arcelor-Mittal did not respond to an email on the issue.
But sources said the talks are in an advanced stage and some details of the JV have already been agreed upon. For instance, both partners will hold 50% each in the venture, which will be registered in India. SCI will get a large captive cargo ready for transportation. The JV will use SCI’s ships for this purpose.
For Arcelor-Mittal, transporting millions of tonnes of products across the world has always been a costly exercise. The company produces 110m tonnes of steel at 26 locations across the world. Chartered ships carry raw materials like iron ore and coking coal from producer countries such as Brazil to steel mills in Europe and other parts of the world. Finished steel is then exported to consuming markets.
The steel giant guzzles around 175-180m tonnes of iron ore annually, most of which is sourced from Brazil. The company also requires huge quantities of coking coal — around 60-70m tonnes at the rate of 0.6 tonne for every tonne of steel produced.
As of now, Mittal Shipping has managed all charter deals with its limited capacity. The huge jump in volumes after the Arcelor-Mittal merger makes the task of finding a cheaper way of transportation important. LN Mittal, the billionaire steel magnate, believes that a shipping company with its own fleet could help bring down total transportation costs substantially, especially when the bulk/break-bulk charter market is on an upswing.
Also, SCI’s expertise in the international charter market could add value to the venture. India, which has emerged as an international ore supplier of late, could start supplying iron ore as well if the transportation costs are brought down substantially.
Shipping analysts, however, said that even if the JV is incorporated now, it will have to wait for a while before buying ships since the asset prices are ruling high in the sale-and-purchase (S&P) market. The JV will have to concentrate on spot or short-term charters for the time being, till the asset prices fall.
Mr Mittal, who announced two identical 12m tonne projects in Orissa and Jharkhand, is also keen to export ore from India, said sources.
If the JV is formed, it will be Mittal’s second such venture with a public sector undertaking in India. It had formed a JV with ONGC — ONGC-Mittal Energy Services (OMESL). Set up in the tenure of former ONGC chairman Subir Raha, OMESL was to acquire oil and gas properties, besides trading and shipping oil and gas, including liquefied natural gas (LNG).
SCI has struck a new route for growth through joint ventures with the private sector. Mr Hajara had earlier said that SCI’s growth is expected to come through JV’s, since buying second-hand ships through JVs will be easier. Being a PSU, SCI faces restrictions for buying second-hand assets. It has to seek government approval before placing orders for new ships.
http://economictimes.indiatimes.com/articleshow/2007831.cms
:SugarwareZ-229: