Mittal Steel (NYSE:MT) seems to be returning to its roots. Although Lakshmi Mittal is one of India's best-known businessmen, his company currently lacks any steel operations in his native land. That's about to change, as the company plans a sizable investment in this fast-growing country.
Mittal Steel intends to build a steel mill in Orissa, an eastern Indian state that is exceptionally rich in mineral resources like coal, iron ore, and bauxite. Though the mill will ultimately produce 12 million tons of steel a year (assuming that it's built to plan), it will be constructed in two stages, each with a six-milion-ton capacity. Mittal's total investment in the project should be between $6.7 billion and $9 billion -- an unusually wide range, but so be it.
Mittal certainly won't be the first steelmaker to take a major interest in India, nor the last. POSCO (NYSE:PKX) is building its steelmaking complex in India, and local forces like Tata Steel remain very much in the picture. The rationale for making steel in India is rather straightforward -- not only is India a growing consumer of steel, but the country is also an attractive source of its necessary ingredients (primarily coal and iron ore).
Assuming that this deal gets signed and implemented, I can see how some investors would be concerned. It's a fairly expensive project, particularly in the wake of the company's costly courtship of Arcelor, and such investments often lead to worries about cyclical tops in the market. After all, high prices stimulate investment into new production capacity, which in turn ultimately pushes prices back down.
In this case, though, I'm not especially worried. The notion of insatiable and unstoppable growth in India and China may be overplayed in the media, but there's a pretty sizable demand for steel in those locales, and I don't expect it to drop off over the long term.
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Fool contributor Stephen Simpson owns shares of Mittal Steel but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Fool has a well-forged disclosure policy.
