March 26, 2018 / 6:54 AM / 25 days ago

UPDATE 2-India's JSW Steel to invest $500 mln in U.S. operations

* JSW USA gets $3.4 mln grant from Texas state

* Investment to be completed by March 2020 (Adds details, analyst comment)

By Vishal Sridhar

March 26 (Reuters) - India’s JSW Steel Ltd said on Monday it would spend $500 million to build out its U.S. operations in Texas, amid heightened global trade tensions following U.S President Donald Trump’s decision to pursue steep import tariffs.

The company has signed an agreement with the Texas governor's office, under which the governor has approved a grant worth $3.4 million to the company's unit, the steelmaker said in a statement here

The unit, JSW USA, sells high-quality carbon plates to the energy, petrochemicals, defence and other heavy equipment industries.

The company will use $150 million of the funds to improve and modernize its plant in Baytown, Texas, while the rest will fund a new facility, it said.

“The Texas plant has been struggling for a long time,” said Motilal Oswal Securities analyst Sanjay Jain.

“Basically the company is going to do some backward integration, which is a good idea considering that U.S. is surplus in steel scraps, and imports are higher considering the recent tariffs. So that makes the case for investment.”

The unit produced 59,623 net tonnes of steel plates at a capacity utilization of 24 percent and 15,109 net tonnes of steel pipes at an 11 percent utilization, in the quarter ended Dec. 31.

“Access to natural gas at extremely economical prices and the abundant availability of scrap steel in Texas make conditions very conducive for manufacturing through the Electric Arc Furnace Route,” said Parth Jindal, director of JSW USA and son of JSW group Chairman and Managing Director Sajjan Jindal.

The investment will be made in phases and the capex plan is expected to completed by March 2020.

Earlier this month, U.S. President Donald Trump pressed ahead with import tariffs of 25 percent on steel and 10 percent for aluminum, raising the prospect of a global trade war.

Six trade partners, including Canada, Mexico and the European Union were later excluded from the higher import duties until May 1.

India’s Trade Minister Suresh Prabhu said last week the country would bilaterally discuss import curbs on steel with the United States. (Reporting by Vishal Sridhar in Bengaluru; Editing by Gopakumar Warrier, Sayantani Ghosh and Amrutha Gayathri)

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