Exclusive: Posco’s Steel Plant In India Faces Disruption, Hampering Auto Supply Chain

Operations at South Korean steelmaker Posco’s plant in India’s western state of Maharashtra have been disrupted by protests over labour and other issues, police and sources told Reuters, hampering the supply chain for automakers.

A politician leading the protests said they blocked entry to the plant for employees and goods, and will continue until Posco heeds demands such as employment preference for locals, higher wages for temporary employees and steps to make them permanent.

Supply of steel from Posco’s Maharashtra plant has been hit and carmakers’ production “is likely to come to a standstill” if the issue is not resolved soon, India’s top auto industry body told the state’s chief minister in a March 10 letter.

“The blockage is…causing disruption in the supply chain and is resulting in shortage of critical auto parts and components,” the Society of Indian Automobile Manufacturers (SIAM) said in the letter, reviewed by Reuters.

“In view of this, production activity at the facilities of vehicle manufacturers in India is likely to come to a standstill,” SIAM said, adding that Posco is one of the indsutry’s major suppliers of steel.

Reuters could not independently verify the extent of disruption at Posco’s plant.

Posco said the situation had no impact on steel production, but interruptions caused to its logistics arrangements blocked the flow of products and materials with the plant.

Protesters’ demands include the award of contracts for transport and distribution of steel scrap, Posco said, but it did not say what steps it would take or the extent of financial and operational impact on its business.

Automakers such as Maruti Suzuki, India’s top carmaker by sales, Hyundai Motor, Kia Motors, Tata Motors and Mahindra & Mahindra source steel from the Posco plant, sources said.

These firms, which together account for more than 80% of India’s automobile output, did not respond to requests for comment.

The Maharashtra chief minister’s office also did not respond.

SIAM said the disruption comes as companies are still recovering from the coronavirus crisis, and could prove a major setback for the economy.

“Such incidents would also seriously tarnish the image of India as a preferred destination for investment,” SIAM said in the letter, also sent to the central government to seek its urgent intervention.

The protest is the second instance in recent weeks that a global firm has faced issues in India’s top business state.

In January, General Motors said Maharashtra’s move to block the U.S. automaker from shutting its plant and leaving India defied the state’s business friendly image and sent a “concerning message” to future investors.

Chandrashekhar Khanvilkar, the politician leading the Posco protests told Reuters the other demands included preference for local companies in providing transport, canteen and garden maintenance services, as well as in sales of steel scrap.

“We are not allowing transport vehicles and workers to enter the factory,” Khanvilkar said, adding that the protests had run since March 2. “We will continue the agitation peacefully until the company agrees to at least a few of our 18 demands.”

As many as 30 police now guard the plant, up from an initial figure of six or seven, police official Pradeep Deshmukh told Reuters.

-Reuters