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Auto cos to feel pinch on steel because of Japan quake: Essar

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Essar Steel today said domestic automobile companies may feel the pinch for auto grade steel as the devastation caused by earthquake and tsunami in Japan is likely to affect the imports from the east-Asian nation.

"I am a little worried about the domestic automotive customers as they do lot of steel imports from Japan. It's not that steel will not be available for them (Indian companies), but the (Japanese) companies may shift their priority for rebuilding the local infrastructure," Essar Steel CEO Malay Mukherjee said on the sidelines of a conference.

He, however, refused to comment on the extent of impact on auto-grade steel imports, saying "it is too early to estimate, we should wait for some time to allow things to stabilise (in Japan)".

Mukherjee, who has served on the Board of ArcelorMittal, said, "The impact is yet to be ascertained... What we all know is that cost of rebuilding is estimated nearly at $100 billion and steel will definitely form a big part of that expenditure."

According to industry estimates, Indian automobile companies require about 4 million tonne of auto-grade steel per annum and more than 50% of the demand is met through imports.

This demand is likely to grow even further due to an expected 20% growth in the automotive sector.

However, the extent of auto-grade steel imports from Japan could not be ascertained.

Moreover, several Japanese steel makers like Nippon, JFE and Kobe made their presence felt in India last year and forged tie-ups with major domestic steel producers like JSW, Tata Steel, SAIL and Essar.

Leading Japanese steel maker Nippon inked a pact with Tata Steel in January to set up a joint venture to produce 0.6 million tonne per annum auto-grade steel at Jamshedpur, while JFE bought little less than 15% equity in JSW last year.

Nippon Steel is investing about Rs 164 crore on an auto steel pipe plant in Rajasthan.

Not to be left behind, Essar Steel and SAIL signed two separate memoranda of understandings (MoU) with Kobe Steel, another major Japanese steel maker, in December, 2010, for a possible tie-up, which included auto-grade steel.

On the tie-up with Kobe for setting up a specialised unit of auto-grade steel, Mukherjee said that a feasibility study is still on and a team of Kobe Steel was here last week in this regard.

"They (Kobe's representatives) were here last week only. It is not only about putting up a plant... It is also to ensure that there is a market for the products and that's why the study is going on," he said, adding that the MoU is valid for a year within which the agreement has to be finalised.