India's Essar Steel is reportedly in talks to acquire Egypt's Kandil Steel.

The Indian steel giant is believed to have sent feelers to Kandil Steel and is likely to offer a formal proposal to its management in the near future, the Emirates Business 24/7 report said, without quoting sources.

Essar Steel Middle East, through its subsidiary, had announced its plans to set up a 2,50,000-tonne processing and service centre in Dubai's Jebel Ali Free Zone in January this year to serve Essar's expanding regional client base in sectors such as automotive, white goods, ship building and engineering.

Indian steel majors are consolidating their presence in the Middle East to cater to the strong demand for steel in the Middle East and North Africa (Mena) region, which has projected a supply shortfall of 15 million tonnes.

Kandil Steel makes cold and hot-rolled coil and sheets, galvanised coils and pipes for outdoor, marine and industrial appliances and caters to the Mena and European markets.

It plans to reach a capacity of a million tonnes per year in 2010, the report said.

Last month, Jindal Steel and Power (JSPL) agreed to acquire Oman-based Shadeed Iron and Steel Co from the UAE-based Al Ghaith Holdings, for $464 million, third biggest overseas acquisition by an Indian steel maker.

B Sivakumar, Director of Essar Steel Middle East FZE, said that the proposed facility will be in line with Essar's policy to be closer to its customers.

'We have been servicing this market for over a decade now. Establishing a base in the Jebel Ali, one of the regions oldest and largest business hubs, gives us a strategic platform to implement our growth plans in the region,' said Sivakumar.

Steel production for the UAE, Saudi Arabia and Qatar is expected to rise to 8.45 million tonnes per annum (MTPA) in 2010, up from 6.8 MTPA in 2009.