January 27, 2012,

By Abhishek Shanker

Jan. 27 (Bloomberg) — Posco may build a smaller steel mill than planned in India after failing to secure enough land for what would be the biggest overseas investment in the south Asian nation, two people familiar with the plans said.

The world’s third-biggest steelmaker is looking to reduce the amount of land for the mill and iron ore mine project, said the people who declined to be identified because they aren’t authorized to speak publicly. The plant size may be cut to 8 million metric tons from 12 million, one of the people said.

Taking less land may help Posco clear the way to begin construction in the eastern state of Odisha after more than six years of delay as farmers refused to vacate the state-owned land they have occupied for generations. Pohang, South Korea-based Posco has kept pushing for the project through the delays, attracted by India’s average 10 percent growth in annual steel consumption over the past six years.

Posco may need only 2,800 acres, about 25 percent less than the 3,719 acres currently being sought, to build a factory of lesser capacity, the person said. The state, which has acquired more than 2,100 acres of land, halted a purchase in the Jagatsinghpur district in December after protests by the local population.

Vikas Sharan, a spokesman at Posco India, declined to comment.

“The state is doing its best to acquire land for the Posco project,” Raghunath Mohanty, Odisha’s industries minister, said in a phone interview. “It is not feasible to set a deadline but I hope the process would soon get over.”

Posco gained 1.7 percent to 423,500 won, at 1:16 p.m. in Seoul. The stock has declined 10 percent in the past year, compared with a 7.2 percent drop in the benchmark Kospi index.

Iron Ore

Posco has also agreed to remove a clause in its original approval that allowed it to export 30 percent of the iron ore produced at the mine, one of the people said. The clause in the mining agreement with the Odisha state government was being renegotiated last year after it expired. Odisha was known as Orissa until its name changed in November.

The delays since 2005 mean Posco has already missed out on the over 60 percent jump in India’s steel consumption since then. Construction costs are also unlikely to come down from the 520 billion rupees ($10 billion) forecast in 2005 as costs have surged, one person said.

India’s steel ministry in November estimated the country’s demand for steel may grow at 9 percent per annum over the next five years.

Posco and rivals including ArcelorMittal, the world’s top producer, are looking to build steel factories in India on expectations the steel consumption there will outpace global demand. The nation’s steel ministry forecasts 9 percent growth in demand over the next five years.

ArcelorMittal has $20 billion of planned projects in the states of Odisha and Jharkhand and has also waited more than six years because of delays in securing approvals and land. The two companies have also planned investments in a proposed factory in the southern state of Karnataka.

ArcelorMittal may secure all the land for its $6.3 billion plant in the southern state of Karnataka by March, state Industries Commissioner Maheshwar Rao said on Sept. 20.

–Editors: Andrew Hobbs, Indranil Ghosh