Top Indian steel maker JSW targets US and Europe for expansion

Steel is forged in Baytown, Texas. JSW Steel is looking to do deals in the US and/or Europe. AP

India’s top steel maker JSW Steel says it is scouting for more deals in the United States and Europe to expand its global footprint, betting that vibrant growth will underpin demand in overseas markets and complement a boom at home that has seen the mill ramp up local output.

“What is driving us is that, inherently, we find it is an interesting opportunity because the US economy is doing well” and the investment cycle looks positive, joint managing director Seshagiri Rao said. After meeting half its target for 10 million tonnes of capacity overseas, the steel maker is now looking to buy more facilities, Mr Rao said in Mumbai.

While the global industry has been roiled this year by tariffs imposed by US President Donald Trump on some flows of steel into the world’s top economy, mills are still enjoying benign conditions. Worldwide production hit a record in May as capacity utilisation climbed, according to the World Steel Association. Against that backdrop, Mumbai-based JSW has been busy: after announcing a move to triple output at its Texas plant, it snapped up another US facility in Ohio, taking total planned investment in the country to $1 billion (Dh3.67bn).

For Mr Rao, the commercial lure is not dependent on the trade moves, which he said are transitory. “The US economy – notwithstanding the trade remedial measures which the US government has taken – is quite buoyant, demand is picking up,” he said. “It is not because tariffs were introduced in the US or somewhere else, that is why we wanted to invest.”

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Still, Ritesh Shah, an analyst at Investec Capital Services, said JSW’s decisions were sound, in the context of the curbs. “It does make sense to have manufacturing bases in US and Europe in an increasingly protectionist world,” Mr Shah said. “One, it gives JSW Steel access to markets which would otherwise be difficult to get into. Secondly, it ensures you are closer to your customers.”

JSW Steel shares have soared more than 60 per cent in the past year, aided by record output and profit. To meet local demand, the company plans a $6bn capacity expansion in India. In May, it made an acquisition in Italy, and it has another purchase awaiting approval from India’s company law tribunal.

As part of its trade agenda, Trump imposed a tariff of 25 per cent on imported steel, aiming to restrict a flood of cheap foreign supplies. While that has helped to trigger some plant restarts, it’s alienated trading partners, and may spur tit-for-tat moves, with Canada now said to be is preparing its own measures.

JSW’s decision to plough more funds into Ohio caught the attention of US Commerce Secretary Wilbur Ross, one the key architects in the administration for its moves on steel, as well as potential curbs on a host of other items. In a tweet, Mr Ross lauded the “investments made in the great state of Ohio”.

US steel output has been picking up. Production in March topped 7.3 million tonnes, the highest monthly total since late 2014, according to World Steel Association data. The economy is about to enter the 10th year of expansion, and growth may reach 4 per cent this quarter, the fastest since 2014.

In Europe, ArcelorMittal is selling assets in Italy, Belgium, the Czech Republic, Luxembourg, Romania and Macedonia to meet regulatory requirements enabling the world’s top producer to take over Italy’s Ilva, for which a JSW-led consortium had also bid. Mr Rao denied reports that the company may make an offer for Arcelor’s Galati plant in Romania, while declining to comment on the others.

JSW Steel produced 15.8 million tonnes of crude steel in the year to March 31, up 26 per cent from a year ago. The company has said it plans to boost capacity by more than a third to about 25 million tonnes a year by March 2020.

“If someone is spending a billion dollars for a million ton, we spend only $500 million,” Mr Rao said. “On capital-allocation side, if we are cautious – whether I invest in US or Europe – then my returns always remain accretive not withstanding the cycles,” he said.