JSW Steel Ltd. is planning to spend $2.5 billion on a new blast furnace on India’s west coast that will allow the nation’s third-largest producer to cut shipment costs, according to people with direct knowledge of the matter.

The 5 million metric ton capacity blast furnace at its existing unit near Mumbai will increase total capacity 35 percent to more than 19 million tons, the people said, asking not to be identified as the plan is in the initial stages. The furnace will be in production in three years, one of the people said.

The expansion will help Sajjan Jindal-owned JSW to sidestep uncertainty over domestic raw material supplies as it could import coal and iron ore. The company has already postponed a 2006 plan to build a 10 million ton steel factory about 150 kilometers (93 miles) from a port in the eastern state of West Bengal as it couldn’t secure iron ore supplies locally.

“The company is looking into the proposal but nothing has been finalized yet,” Seshagiri Rao, group chief financial officer, said about JSW’s plans for the new factory, on the sidelines of its earnings press conference on Jan. 30.

JSW gained 4.2 percent to 977.85 rupees at the close in Mumbai, the most since Sept. 1. The stock has fallen 6.7 percent this year, compared with a 3.8 percent gain in benchmark S&P BSE Sensex.

Biggest Consumers

India’s west coast is closer to the biggest steel-consuming markets in the country and demand in the region is expected to gain as Prime Minister Narendra Modi implements a plan to build new cities, an industrial corridor and a railway-freight network. JSW’s biggest factory of 10 million tons is located in the southern state of Karnataka. It’s increased its presence in the western state of Maharashtra through acquisitions of two steel factories since 2011.

The International Monetary Fund predicts India will next year grow faster than Brazil, Russia and China for the first time since 1999. Modi’s pledge to make it easier for businesses to invest in India could act as a trigger for growth and boost demand for steel.

The nation’s steel demand will probably grow at the fastest pace among the top three consuming nations in the world in 2015, based on an October forecast by the World Steel Association. India’s alloy consumption will probably rise at 6 percent this year, compared with 0.8 percent for China and 1.9 percent for the U.S., the World Steel Association said.

Mumbai-based JSW, which in 2012 had set a 40-million ton target by 2020, has enough land at its existing units in Maharashtra and is in the process of seeking government approvals, one person said. JSW’s greenfield projects in the states of West Bengal and Jharkhand have yet to take off and the company is struggling to meet its iron ore needs for its Karnataka factory because it doesn’t own any mine in India.

 

Source : http://www.bloomberg.com/

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