Low capacity utilisation is killing the steel industry: Vinod Nowal

Interview with Deputy MD & CEO, JSW Steel

 

In April this year, the Supreme Court had allowed the resumption of mining operations in Karnataka. However, all steel mills in the state continue to operate at about half their installed capacities, owing to an acute shortage of iron ore. JSW Steel, however, has performed relatively better than its peers. Deputy Managing Director and Chief Executive Officer Vinod Nowal, in an interview with Mahesh Kulkarni, talks about the raw material environment in Karnataka and how the company will manage to achieve its production target this financial year. Edited excerpts:

In April this year, the Supreme Court had allowed category A and B mines to resume operations. What is the availability of iron ore for steel mills in Karnataka?

Currently, iron ore availability stands at about 15 million tonnes (mt), which is barely sufficient to achieve 50-60 per cent capacity utilisation for all steel mills. High prices at e-auctions have also affected the profitability of steel mills. Lower capacity utilisation is killing the steel industry. To remain competitive, we need to produce at least 90-95 per cent of our capacity.

What is the current capacity utilisation at JSW Steel? How are you dealing with the acute shortage of iron ore?

As we do not have enough supplies, we are forced to buy in the state. At JSW, we are managing to produce 80-85 per cent with the help of raw material sourced from Chhattisgarh and Odisha, for the time being. We expect another two-three mt may come into the market later this year. We could expect more raw material if Sesa Sterlite secures the approval to begin operations. The company is awaiting the monitoring committee's approval to start mining.

Do you think the Karnataka government's plea in the Supreme Court to increase iron ore production for two years is sufficient to meet the industry’s raw material requirement?

It is a welcome move by the state government. While the steel industry requires about 35 mt of iron ore a year to achieve current capacities, there is a cap of 30 mt. The government can ensure the supply of an additional 10 mt through the allotment of fresh leases, which will take one-two years to start production. There is a need for the Centre and states to hasten the process of approving mines because the governments are losing revenue of Rs 6,000 for every tonne of steel produced.

What steps are required to increase the availability of raw material to steel mills?

The state government should expedite the process of re-allotting category C mines, which have been cancelled. There is a need to hasten the process. These mines can produce the additional ore required for the user industries. Besides, the government should expedite pending clearances for other mines in category A and B immediately; the increased supply will help stabilise prices.

What is the price trend for iron ore secured through e-auctions? How much are you sourcing from states such as Chhattisgarh and Odisha?

Currently, the iron ore fines with 63 per cent Fe grade sold by NMDC through e-auctions in Karnataka are priced at Rs 2,700-2,800 a tonne. Private mine owners are charging Rs 3,800-4,000 a tonne. Additionally, we have to pay 22 per cent tax by way of royalty, forest development tax and transportation cost. At JSW, we are sourcing about three mt for our Vijayanagar steel plant. The ore cost in Chhattisgarh and Odisha works out to Rs 1,500 a tonne for 57 grade ore when loaded into wagons, 55 per cent lower than the material available in Karnataka.