The inside story of ArcelorMittal/Nippon Steel's big India plans

HAZIRA, A bustling industrial town 25 km from Surat, Gujarat, shimmers under the midday sun as workers seek shade after their meals. The road to the ArcelorMittal/Nippon Steel India Ltd. (AM/NS) steel plant, located at the edge of the Arabian Sea, buzzes with trucks carrying steel coils and sheets. Within its sprawling 2,000-hectare complex, the steel mills hum tirelessly to meet the rising market demand.

The 9 million-tonne-per-annum (MTPA) steel plant uses a rare combination of three iron-making technologies — midrex, blast furnace, and corex. The opportunity for the 60:40 joint venture (JV) is huge — India is looking to more than double its steel production to 300 MT by 2030. What’s more, per capita crude steel consumption is also gaining momentum — from 59 kg in 2014 to 119 kg in 2023.

To tap into the rising demand, AM/NS bought an additional 700 hectares of land from private parties and forest and revenue departments in the vicinity. The plan is to make AM/NS Hazira the world’s largest, single site, coastal steelmaking facility. The company is spending $5.1 billion for upstream capacity expansion to 15 MT by 2026, from 9 MT and $1 billion for ramping up manufacturing of patented value-added steel products for automotive, solar and wind energy, defence and infrastructure sectors. Another $1.6 billion will be spent for support facilities, taking the Phase 1 investment to $7.7 billion, estimated to enhance AM/NS India’s EBITDA and investable cash flow 2.5 times.

The JV will come up with downstream lines for making steel for the lucrative automotive market and high-end galvanised products, Dilip C. Oommen, director and CEO, AM/NS India, tells Fortune India. “One of the downstream lines has already started. We have launched two specialised products in the market — Optigal and Magnelis (both are patented products of ArcelorMittal),” he says. The steelmaker is expected to introduce similar patented products from Japanese giant Nippon’s portfolio soon.

According to Oommen, the land is sufficient for housing 24 MT of steel production facilities. The management plans a capex-rich Phase 2A expansion, which would see capacity rise to 18 MT by 2028 and 24 MT by 2030 (Phase 2B).

And it’s not only the Hazira project that is on the cards. The JV is exploring two greenfield plants in Odisha — a 12-24 MT plant in Kendrapara and a 7 MT facility at Paradip. The Paradip plant entails an investment of ₹38,000 crore. AM/NS is also in early stages of discussion with the Andhra Pradesh government to understand the feasibility of building a 12-24 MT steel plant at Nakkapalle in Anakapalle district.

In short, AM/NS wants to take its capacity to 40 MT by 2035. According to back-of-the-envelope calculations, the expansion will cost at least ₹2.5 lakh crore. The competition for them on the capacity creation front is JSW Steel and Tata Steel. While JSW plans to increase its India capacity to 50 MT by 2031 from 28.2 MT, Tata Steel is eyeing 40 MT by 2030 from 21.6 MT.

JSW has entered into a strategic collaboration with Japan’s JFE Steel and recently bought Thyssenkrupp Electrical Steel India (tkES India) to strengthen its position in the electrical steel market. It has also signed a MoU with South Korea’s POSCO to build a 5 MT integrated steel plant, besides announcing collaborations in EV battery materials, and captive renewable energy.

India’s second-largest private player, Tata Steel, on the other hand, is aggressively expanding capacities through acquisitions (it recently bought Bhushan Steel and the steel business of Usha Martin), and is switching its British steelmaking capacity to electric arc furnace for manufacturing recycled steel.

The stage is set for the trio to vie out.

A Fading Past

The Hazira mill was originally built by the Ruia family-owned erstwhile Essar Steel. The family borrowed over ₹40,000 crore to build the plant, but failed to meet the repayment obligations. At that time, L.N. Mittal was searching for an opportunity to roll the dice in India. Mittal, whose long-cherished dream was to own a steel plant in India, continued his attempts for 13-14 years before taking over Essar Steel for ₹42,000 crore through the insolvency resolution process in December 2019.

For ArcelorMittal, it was just the time to be in India. Aditya Mittal, L.N. Mittal’s son and CEO of ArcelorMittal, was deputed for due diligence. The young and dashing Mittal, who became the chairman of the India JV after the takeover, visited the Hazira plant before submitting the bid along with Nippon Steel.

Past attempts were plenty. Before acquiring European steelmaker Arcelor in 2006 to create ArcelorMittal, the Indian steel baron had signed an agreement with the Jharkhand government in 2005. It expired five years later and was followed by MoUs with Odisha and Karnataka, which, too, failed to take off. Mittal also acquired a 29% stake in Uttam Galva, which later became bankrupt.

AM Mining India, a subsidiary of AM/NS, took over the 1.2 MT downstream manufacturing facilities of Uttam Galva at Khopoli, Maharashtra, for ₹3,500 crore, and acquired Gandhidham-based Indian Steel Corp. for ₹897 crore. The assets included a 270 MW power plant and a 25 MT port at Hazira, and a 12 MT port at Paradip. “Both the acquired downstream assets have turned around and are generating cash flows for further investments,” says a company official.

In the last five years, AM/NS invested around $5.8 billion in India for securing the supply chain and infrastructure, including slurry pipelines, iron ore mines, ports, power plants and land. In November 2022, it acquired two port assets and a power plant from the Essar Group for ₹16,500 crore. The company’s net debt remained almost stable — from ₹40,353 crore in FY20 to ₹36,787 crore in FY24 despite the investments, thanks to the fast turnaround and cash flow from the Hazira plant.

Turnaround Tale

The turnaround operation at Hazira is headed by Belgian national Wim Van Gerven, vice president and director of operations, AM/NS India. It was while working in Italy as COO of ArcelorMittal Europe Flat Products Cluster that L.N. Mittal asked Gerven about his willingness to go to India and turn around Essar Steel’s sole crude steel plant. Gerven, a turnaround specialist, eventually agreed to Mittal’s plans.

AM/NS also decided to retain the team of Essar. Employees and workers, who went through pangs of losses and bankruptcy, were charged up with the moves of Mittal and Nippon. When ArcelorMittal filled up the roles allocated to them with European and Indian executives, Nippon chose to go with a group of experts in technology to steer the transition. The board of AM/NS is now a blend of three geographies. “We have three different cultures in the organisation — Indian, European and Japanese. We work like an orchestra,” says Oommen.

Chief of operations Gerven says the plants’ rated capacity was overrated when it was acquired. They had to do the course correction to increase the rated capacity to 8.3 MT from 7 MT in the initial years. There were a lot of backlogs for system upgrades, and environmental investments were halted during the bankruptcy days of the company. “We worked to remediate the issues and enhanced the production quality,” says Gerven.

But some of the plant capacity upgrades were delayed due to the need for technical clarity. “There will be technical issues if you upgrade a plant after 30 years of its installation,” says Gerven. “We developed the mines in the meantime and operationalised additional pallet-making capacity.”

The business turned around from the initial days of acquisition itself. AM/NS registered revenues of over ₹50,000 crore consistently for the last three fiscals. Net profit more than tripled to ₹6,997 crore in FY24, from ₹2,187 crore in the previous year. In the last five years, the company has clocked a combined net profit of over ₹32,000 crore.

The amplified focus on business is the key metric that changed the game for AM/NS, says CEO Oommen. “We did forward and backward integration through acquisitions of connected assets, including ports and power plants, from Essar. It powered the supply chain and reduced costs. We improved plant efficiencies and introduced new products such as Optigal and Magnelis from AM’s stable, and expanded the market foothold together to help rejig the business.”

He is all praise for the technology with which the plant was built. “It was set up with 60-65% iron-making through direct reduced iron (DRI) and electric arc furnace (EAF) routes. This is where the world is moving to in Europe and the U.S — from blast furnaces to DRI modules plus EAF,” he says.

Going forward, AM/NS has its sights set on highly efficient blast furnaces, converters and hot strip mills along with a coke oven plant. The efficiency of the existing plant as well as the quality of products will get a leg-up as well. For the downstream auto and solar grade steel, high-end substrates (base) are required, Oommen adds.

The focus now is on expansion and carbon cutting. Hiroo Ishibashi, director and vice president, technology, AM/NS, says the new technologies will add incremental value to operations, besides reducing carbon emission. “R&D capabilities aided by the parent companies are providing us with a significant competitive edge compared to our domestic peers,” says Ishibashi.

Technology is central to AM/NS’ expansion plans. The upcoming expansion projects will be state-of-the-art, equipped with the best-available technologies and maximum energy recuperation capabilities, with the potential to integrate carbon capture, utilisation, and storage (CCUS) technology in the future, says Ishibashi. “The commitment to lower carbon, gas-based production processes and a razor-focus on operational efficiency during production has resulted in one of the lowest emission intensities among integrated steel producers in India,” Ishibashi claims.

Roadmap For The Future

In July this year, while cruising down the Canal Saint Martin in Paris with the blazing Olympic torch in his right hand, Aditya Mittal was brimming with pride, not just for carrying the sacred flame, but the low-carbon steel his team crafted for making the torch and other cherished spectaculars of the Paris Olympics. In his recent letter to shareholders, Mittal says, “We may be the youngest steel manufacturer in India, but I believe we are the boldest in our embrace of the opportunity India presents.”

He believes the Indian economy, which grew 8.2% in FY24, is expected to replicate the same intensity of economic activity for the next decade. “Indian steel demand has grown by around 10% in 2024 and steel production is expected to increase from 150 MT in 2024 to 215-230 MT (and capacity of 240-250 MT) by 2030,” Goldman Sachs Equity Research says in its report.

The country offers better opportunities for global steel giants considering the geopolitical risks and high inflation, as well as synchronised monetary tightening in developed economies that weighs down on the steel business. The key near-term issue is Chinese imports flooding the market (imports are up around one third, while exports are down one-third since March), according to analysts with Barclays Research.

Post completion of the Essar Steel acquisition in December 2019, AM/NS executed a $0.8-billion debottlenecking project to realise the Hazira plant’s 9 MT nameplate capacity. With this, the plant achieved a production run-rate of 8.3 MT. The organic growth has been supported by strategic assets acquired, including four power plants with a total capacity of 1,345 MW; 250 km slurry pipeline; deep draft port and infrastructure, and two downstream coating facilities of Uttam Galva and Indian Steel.

AM/NS has iron ore mines at Thakurani and Sagasahi in Odisha and iron ore is cleansed and purified at its beneficiation facilities in Dabuna (Odisha) and Kirandul (Chhattisgarh). About 60% of its iron ore requirement is met via captive sourcing. The refined iron is transported to pellet facilities in Paradip and Visakhapatnam through an extensive network of slurry pipelines. These iron pellets are shipped to the port at Hazira from the east coast. The pellets, converted into molten iron or DRI, are then processed through an electric arc furnace and converted into slabs, before being rolled into finished products.

Through galvanising, colour coating, and other processes, the company customises the steel to meet specific requirements at its facilities in Pune. The products are sold at over 70 retail outlets, ‘Mera Hypermart’.

Ranjan Dhar, director and vice president of sales and marketing, says AM/NS’ strategy is to introduce the best value-added steel available with ArcelorMittal and Nippon. By FY26, the company will invest ₹60,000 crore in its Hazira plant to increase manufacturing capacity to 15 MT.

Opportunity Hunt

AM/NS has been focused on plates, and has developed galvanising lines (to improve corrosion resistance) in the last five years. “In a steel plant, introducing new products is a daily business,” Gerven says with a smirk. Currently, AM/NS has around 700 grade products in its kitty. With the downstream expansion, the company will have all special steel grades of high strength for car manufacturing, including the metal for skin panels. It is also setting up a new production line for galvannealed steel, specially treated steel manufactured in Japan and Korea. “All the best grades available in the world will be produced from Hazira,” says Gerven.

The shift to low-carbon emission is another target. There has been a 34% decline in carbon intensity during 2015-2023. “The current CO2 intensity is 14% below the Indian peer group average,” according to a company presentation. Gerven says there are plans to lower emission intensity by 20% by 2030 through replacement of coal-based power with renewables, increasing scrap use and operational improvements. The company wants to eventually source 100% additional electricity from renewables.

The JV will also work to construct 975 MW of nominal solar and wind capacity utilising Greenko’s hydro pump storage project. In 2022, ArcelorMittal entered into a strategic partnership with energy transition company Greenko to develop solar and wind power projects with 975 MW of nominal capacity. Around 250 MW of uninterrupted renewable power will be supplied annually to AM/NS India under a 25-year off-take, reducing its carbon emissions by 1.5 million tonnes per annum. Greenko will also construct renewable energy facilities in Andhra Pradesh and Uttar Pradesh for AM/NS.

“We should have 10 GW to cater to the future needs of Hazira. We are going to be 2GW now,” says Oommen.

The JV also plans to raise the current 3-5% scrap mix of its total steelmaking capacity to over 10% by 2030. Operational improvements include use of BF-BOF technology for steelmaking, digitisation, energy recuperation and fuel substitution with natural gas injection.

Mission Ambition

AM/NS plans to enhance its market share as it increases capacity to 40 MT. “It is now at 13%, and is targeted to grow up to 20%. The next focus is to widen the value-added products portfolio,” says Oommen. In the automotive segment, the target is a 40% market share against the current 10%.

The management is building a resilient capital structure to weather downturns in the steel cycle. “It can be achieved through fiscal discipline. We have cost competitiveness in mind while doing the procurement and raw material securitisation,” cites Oommen.

The mission is ambitious. Aditya Mittal, L.N. Mittal and the Nippon management are just a call away. “We can reach out to them any time,” adds Oommen.

AM/NS is utilising every inch of land inside the Hazira complex for optimising steel production. The ultimate target: To increase its share in India’s steel pie.