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ArcelorMittal (NYSE:MT) has been jumping at opportunities to make a bigger impact in Asian. The company is by far the largest producer of steel in the world, and obviously knows how important it is to gain a strong foothold in Asia to retain this position. No wonder it has been keen on growing in India. After 2 failed attempts, the company might finally be able to enter this rapidly growing economy. ArcelorMittal competes with other international steel giants like BaoSteel, Posco (NYSE:PKX), Nippon Steel and ThyssenKrupp.

Our price estimate for Arcelor Mittal stands at $40.67, roughly 11% above the current market price.

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ArcelorMittal’s Push into Asia

Asia provides ArcelorMittal with two important components: a rapidly growing market for steel due to economic growth, and low-cost labor to reduce its overall production costs. It is already present in China through its subsidiary, Lugang, and also through a joint venture with the China Oriental group. [1]

Quite recently, the company announced its plans to acquire a 40% stake in the Thai steel producer G Steel. You can read more about the deal and its potential impact on ArcelorMittal in our article titled ArcelorMittal’s G Steel Stake Widens Footprint in Asia.

India Has Been Held up Until Now

ArcelorMittal had first signed an agreement in 2005 with the government of the Indian state of Jharkhand to set up a plant with an annual capacity of 12 million tons per annum (mtpa). [2] This was followed by another agreement to set up a plant with 12 mtpa in the state of Orissa. However both plants have been held up as the company has waited to receive land by the respective state governments.

The Indian state of Karnataka has agreed to allot ArcelorMittal the land for setting up a 6 mtps plant within the next 30 days. [3] The plant could cost the company about $6 billion to construct according to estimates, and if all goes according to plan, the construction would begin by May of this year.

We currently forecast that ArcelorMittal sells around 14 mpta through its Asia, Africa and CIS division, and we expect this to grow to around 18.7 mpta by the end of our forecast period. In a scenario where this increased to 25 mpta, this would add around 5% to our price estimate.

See our full analysis and $40.67 price estimate for ArcelorMittal

Notes:

  1. ArcelorMittal China Projects, ArcelorMittal Website, 2011
  2. ArcelorMittal land buy for Jharkhand plant delayed, DNA, April 1 2011
  3. Indian State to Allot ArcelorMittal Land in 30 Days, The Wall Street Journal, March 22 2011

Disclosure: No positions

Source: ArcelorMittal Gets Go Ahead for New India Plant