Posco India inks $730mn steel purchase deal with Essar

Private-sector Essar Steel has signed a deal to sell 1mn t of hot-rolled steel to the Indian arm of South Korean steelmaker Posco for 50bn rupees ($730mn).

Posco has procured around 2.5mn t hot-rolled steel from Essar Steel over the past five years for use as substrate for value-added products manufactured at its plant in the western state of Maharashtra. The Posco plant has a 1.8mn t/yr cold-rolling mill, 1mn t/yr continuous annealing assembly line and 450,000 t/yr galvanising line.

The 10mn t/yr Essar Steel produces only flat products at its sole integrated plant in the western town of Hazira.

Demand for hot-rolled coil remains sluggish in the domestic market amid a decline in automobile sales and the liquidity crunch affecting infrastructure and real estate construction.

Demand is expected to pick up from October after the monsoon rains are over, with an expected boost in infrastructure spending and measures to shore up the balance sheets of banks affected by bad loans.

The deal comes close on the heels of a judgement by an appellate tribunal of the bankruptcy court upholding the acquisition of Essar Steel by a joint venture between ArcelorMittal and Nippon Steel, dismissing an application by one of Essar's founders, Prashant Ruia, who had challenged the takeover.

But the court has modified ArcelorMittal-Nippon Steel's $6bn payout to creditors to provide an equitable distribution of funds between operational and financial creditors.

Essar Steel was put up for auction by its committee of creditors under the supervision of a bankruptcy court in October 2017, and ArcelorMittal's winning bid was announced in October 2018. ArcelorMittal has yet to take over operations at the plant as legal challenges have since continued.

Essar Steel will study the latest decision by the appellate tribunal in detail to see how it affects the acquisition. Essar Steel's founding family said it will take further action after studying the decision in detail, which may lead to a further legal challenge against the acquisition.