Korean steel producer POSCO (PKX) is set to enter the Indian transformer market, as its affiliate, POSCO-CORE India, is ready with its new production line for GO lamination sheets.

POSCO-CORE India is a joint venture between POSCO-TMC (74% shares) and POSCO-IPPC (India Pune Processing Center) (36% shares) and is situated at Pune Industrial Complex, in the state of Maharashtra, India.

The joint venture’s production facility has El Core Press and two lamination transformers all operating at full capacity. Currently, POSCO-CORE India has the potential to produce 6000 tons of El Core and 10,000 tons of lamination annually.

For a long time, India has been an attractive investment destination for POSCO. The company’s much awaited $12 billion Orissa project – which involves an integrated steel plant with 12 billion tons of annual capacity and a port in Orissa – recently received approval with 28 new conditions for the plant and 32 fresh conditions for the captive port.

India’s transformer market is a high growth market, expanding 25%-30% over time. The  industry can be divided under the following heads: distribution transformers, power transformers, generating transformer and other types of special transformers for welding, traction, furnace etc. Its large players include Bhel, Crompton, Areva T&D, Bharat Bijlee and Emco.

With a rising demand for electricity in the country, the need for transformer will also increase. Also, demands from the replacement markets are high. Moreover, a few Governmental initiatives are likely to boost demand for transformers in the near to mid terms.

Apart from this project, POSCO is taking initiatives to increase its GO-processing centers in the country, including POSCO-IPPC 3 plant in Hyderabad and POSCO-Poggen Amp joint venture in Ahmedabad.

POSCO’s focus on regional diversification, self-sufficiency in raw materials and higher proportion of value-added products in its product mix are encouraging attributes. For fiscal year 2011, the company expects consolidated revenue to be approximately KRW 66 trillion and investments to be approximately KRW 9.8 trillion. The company also intends to save costs amounting to KRW 800 billion. The company faces stiff competition from Arcelor Mittal (MT) and Nippon Steel Corp.

We currently maintain a Neutral recommendation on the stock.

 
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