Japan's second largest steelmaker, Tokyo-based JFE Steel Corporation, and India's leading private sector steel company, JSW Steel Ltd, have bonded together in a historic collaboration agreement which covers a strategic alliance for steel used in automobiles, while the Japanese company may acquire a stake in JSW in the near future.
As per a statement issued by JFE Steel, on November 19 in Mumbai the two companies signed a collaboration agreement which will provide an ideal platform for both steel companies to come together and leverage each others strength to their mutual benefit.
Accordingly, at the outset, the parties have in principle agreed, subject to (i) obtaining all regulatory approvals, (ii) entering into definitive agreements, and (iii) fulfilling all conditions precedent as may be agreed to between the parties in the definitive agreements, to collaborate with each other in India in the area of automotive steel including production technologies and supply of substrate materials for hot rolled, cold rolled and galvanized products. The scope of the agreement also covers joint service activities including application engineering and product development for automotive customers. Separate detailed agreements which shall spell out the scope and time frames will be executed between the two companies area by area.
Car sales in India have grown for nine consecutive months this year spurred by falling interest rates and easier availability of auto loans. Ford Motor Co., Volkswagen AG and other automakers have expanded factories in India to tap demand in the world's second-fastest growing major economy.
In addition, JFE said, "JFE and JSW have also arrived at a broad consensus on the areas where possible mutual collaboration can be explored in India in the near future in accordance with applicable laws. The areas include production of steel products other than automotive steel, energy reduction programs, environmental programs, quality and yield improvement programs, performance audit of JSW facilities, benchmarking of techno-economic parameters between the parties, procurement of raw materials both in and outside of India, project for building and operating an integrated steel production facility in JSW's West Bengal Steel Project, mutual stockholding, other items which may come in the mutual interest of the parties.
Commenting on the deal, local Indian and Japanese reports said that JFE Holdings may buy a stake of about 10 percent in JSW Steel for JPY 30 billion to JPY 40 billion ($337 million-$449 million).
JSW Steel, one of the fastest growing steel companies in the world is expanding its production capacity to 11 million mt per year by 2011 from the current levels of 7.8 million mt per annum and is the largest private integrated steel manufacturer in India based on installed capacity. The company achieved a significant volume growth of 54 percent in crude steel production and 74 percent in saleable steel during the second quarter of FY 2009-10. JSW is poised to become a major player in the value-added segment of products. Its extra wide state-of-the-art hot strip mill will be ready by March 2010. The company has plans to expand its capacity to 32 million mt per annum by 2020 by setting up greenfield projects of 10 million mt per annum each in Jharkhand and West Bengal.
"This collaboration opens up new vistas for our massive expansion projects and is an important milestone in JSW's mission of moving up the value chain in steel production," said Sajjan Jindal, vice chairman and managing director of JSW Steel.
Meanwhile Hajime Bada, president and CEO of JFE Steel, said, "JFE, with this agreement, is determined to intensify its relationship with JSW to serve the request of its automotive customers, which are rapidly expanding production, in local procurement of value-added steel products. This agreement shall also provide JFE an avenue to look into the future possibilities of development in India."