By February-end it will be known whether South Korean steel giant Posco does indeed decide to make steel in India, 10 million tonnes of it, in phases in Orissa, at an estimated cost of Rs 40,000 crore. If the blueprint of Posco-with Australian mining major BHP Billiton in tow-has been hanging fire for so many months now, it's because, as industry sources point out, Posco is particularly keen to get an allocation of 1 billion tonnes of iron ore (over 25 years) from the Orissa government.

To be sure, much of the Indian steel industry, particularly the five big primary producers, is watching anxiously: Will Posco get the iron ore it desires, and if it doesn't, will it decide to pull down the shutters on its Orissa office and head for Brazil? But it's not as if the Posco factor is stopping Indian Big Steel from announcing aggressive expansion plans for the future. Buoyed by firm prices over the past couple of years, which have resulted in many steel majors working on 40 per cent plus operating margins and raking in cash flows running into thousands of crores annually, every steel manufacturer is talking big investments over the next five to seven years. Here's a sample:

Tata Steel plans to up its existing capacity of 4 million tonnes to 15 million plus by 2010. This will involve an expansion of the recently-acquired NatSteel by 2 million tonnes, an addition of 3.4 million at Jamshedpur, a 6 million-tonnne greenfield project in Kalinganagar, Orissa, and another 2 million-tonne greenfield in Bangladesh. The estimated outlay for all this is Rs 33,000 crore. There's the Steel Authority of India Ltd. (sail), which plans to up its hot metal production from 13 million tonnes to 20 million by 2012 in two phases, at a total investment of Rs 25,000 crore. Not to be left behind, the newer steel makers, Essar Steel, the Jindal Vijaynagar-Jindal Iron & Steel combine (which were recently merged) and Ispat Industries are contemplating expansions. Whilst Essar and Ispat are still finalising their longer-term plans, the Jindals plan to take their capacity up from 2.5 million tonnes to 3.8 million by March 2006, and then, with Rs 12,000 crore of investment, up to 10 million by 2010.

Tata Steel plans to up its existing capacity of 4 million tonnes to 15 million plus by 2010 B. Muthuraman MD/Tata Steel

Along with organic growth, the steel majors are also looking for acquisitions, not so much of capacity (of which there's little available domestically) but of raw material and downstream units (cold rolling and galvanised product lines). The Mittal brothers, Pramod and Vinod, have acquired mines in Nigeria via a privately-held company, and Vinod Mittal, Managing Director, Ispat Industries, doesn't rule out shipping some of that ore to his Dolvi plant (off Mumbai). Essar, meantime, plans to raise $500 million (Rs 2,200 crore) to buy out its uk partner Stemcor, which controls 51 per cent in Hygrade Pellets (which ships pellets to Essar's Hazira plant for steel-making), as well as to buy out Stemcor's 100 per cent holding in a cold-rolling and galvanised unit in Gujarat. Stemcor for its part has invested in Mideast Integrated Steel, a beleaguered, cash-strapped steel plant, and will buy the produce of the plant once it begins production.

For an industry that was all but given up for dead till the late 1990s-buffeted as it was by high financing costs and a global overcapacity situation-investments totalling over Rs 1,20,000 crore appear unreal, and downright suicidal. Barring Tata Steel, all the other players have cooled their heels in the red for years, and the Ruias of Essar, the Mittals of Ispat and the Jindals have had to resort to extensive restructuring of debt to live another day.

If India's steel companies are thinking big-ticket expansions today, it's simply because they're well placed to, both in terms of cash-generation as well as competitiveness, in terms of both quality and cost. For the nine months of April-December, Tata Steel is working on operating margins of 44 per cent, and is generating net cash from operations of Rs 3,000 crore. Seshagiri Rao M.V.S., Director-Finance, Jindal Vijaynagar Steel Ltd. (JVSL), expects to generate Rs 4,000 crore of cash by March 2006. "Our capital base at Rs 129 crore is low, and by 2006 our debt-equity will be 1:1, which makes us well placed to raise capital for expansion." Rao adds that for the first phase of expansion, the company might opt for an international listing to raise some Rs 3,000 crore of equity.

Even a company like sail-long perceived to be a case study in inefficiency-has got its act together. Fixed costs are down thanks to volume growth, reduction in manpower and finance costs, and doses of modernisation and upgradation have emboldened the company to plan a mega expansion largely through internal accruals (at least in the first phase).

Essar Steel is moving into acquisitions with plans to raise $500 million to buy out its UK partner Stemcor Shashi Ruia Chairman/Essar

Such a funds-flushed scenario coupled with a looming demand-supply gap is what's prompting the mega expansions by Big Steel. According to government estimates, consumption of steel will nearly double to 60 million tonnes (from 34-35 million tonnes currently) by 2010, and to 100 million by 2018. This demand will accrue largely from infrastructure-related expenditure as well as increased consumption from sectors like consumer durables and automobiles. The auto sector, for instance, is expected to comfortably grow in double digits for the next three-four years. As Vikram Amin, Executive Director, Essar Steel, points out: "Expansion is an imperative given that virtually every (steel-consuming) sector is booming. Even if GDP is steady at 6.5 per cent, that's good enough as the steel industry grows typically 1.5-2 per cent over GDP."

This potential for exponential domestic growth is magnified when you consider that there's no new capacity coming up in the developed world, where high costs are forcing companies to trim production. British Steel and Koninklijke Hoogovens, which had merged to form Corus, have been forced to cut back capacity by a million tonnes because of high costs and competition. "The developed world today has virtually stopped making basic steel and is focussing only on value-added products. This provides a great opportunity for Brazil, India and China," says Rao of JVSL. Mittal makes a case for expansion by pointing out that "we are 100 years behind China if you consider their capacity is 330 million as against our 34 million". Industry analysts are upbeat that demand from China, which consumes a fourth of the world's production, will continue well after the 2008 Beijing Olympics.

Such a bright scenario for India may prompt many a global major like Nippon Steel or Nucor or the Corus group or even China Steel to look at the country more closely. Before that happens, should Indian steel companies be throwing caution to the winds and embarking on a frenzied expansion spree? The lessons of the excesses of the 1990s are still fresh in most promoters' minds, and they point to potential stumbling blocks. For one, although iron ore is produced in plenty in India, there's not enough of it going around; of the 120 million-odd ore mined in 2004, 70 million was exported, most via government agencies. "It just doesn't make sense. Instead of exporting at $40-50 (Rs 1,760-2,200) per tonne, why not value-add by using that ore to make steel and then sell overseas at 10 times that price?" asks a senior executive at a steel company. There's also apprehension that the government may decide to control steel prices in a bid to check inflation. "Such a move will finish off the industry," says Mittal. Such blips notwithstanding, the Indian steel industry has never had it so good, and the best part is that this may just be the beginning of the journey for a global presence and, eventually, dominance.