 "Longer wait for iron ore may hit JSW's production")
The wait is getting longer for steel giant JSW Steel Ltd to normalise production at its Vijayanagar steel plant in Bellary district of Karnataka. The company, which operates a 10 million tonnes per annum (mtpa) steel plant, is still facing uncertainty over regular supply of iron ore, the key raw material, three months after the Supreme Court allowed opening of all clean mines. The company might be forced to take a cut in production in the second or third quarter this year as the supply of iron ore is still erratic with just 14 mines restarting production with an estimated production of 4.77 mt per annum.
“We require about 20 mt of iron ore per annum with 58 per cent Fe to produce 10 mtpa steel. However, the availability of iron ore in Karnataka is hardly 13.77 mtpa, including NMDC. The low-grade stocks are also exhausted and there is a high level of uncertainty over the auction of Category C mines,” Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel, told Business Standard recently.
He said the company was currently procuring another 1.5 mt to 2 mt of ore from Odisha and Chhattisgarh by paying additional cost towards transportation. The cost of procurement is even higher in Karnataka when compared to other states because of higher base prices at e-auctions, he added. JSW Steel is currently procuring ore from Odisha at Rs 1,300 per tonne and paying an additional Rs 2,600 per tonne on logistics, whereas it is getting ore in Karnataka e-auctions at a base price of Rs 2,650. It is also forced to pay 22 per cent taxes (12 per cent forest development tax and 10 per cent royalty) and value-added tax over the base price besides the logistics cost, Rao said.
“The slow progress in according approval to several mines has delayed the restarting of mines in the state. At least eight mines from both Categories A and B are awaiting final approval to restart mining. The state government should process their application faster,” Rao said.
These mines, if approved, can add another 8 mt of iron ore annually. However, these mines may have to wait for between six months to 24 months before getting all approvals, mining industry sources added.
Already, 54 sponge iron makers out of 72 units have shut down their operations due to a shortage of iron ore. Smaller steel makers like Kalyani Steel, BMM Ispat and Sathavahana Ispat are operating between 30 per cent and 60 per cent of their capacity annually.
“We require about 20 mt of iron ore per annum with 58 per cent Fe to produce 10 mtpa steel. However, the availability of iron ore in Karnataka is hardly 13.77 mtpa, including NMDC. The low-grade stocks are also exhausted and there is a high level of uncertainty over the auction of Category C mines,” Seshagiri Rao, joint managing director and group chief financial officer, JSW Steel, told Business Standard recently.
He said the company was currently procuring another 1.5 mt to 2 mt of ore from Odisha and Chhattisgarh by paying additional cost towards transportation. The cost of procurement is even higher in Karnataka when compared to other states because of higher base prices at e-auctions, he added. JSW Steel is currently procuring ore from Odisha at Rs 1,300 per tonne and paying an additional Rs 2,600 per tonne on logistics, whereas it is getting ore in Karnataka e-auctions at a base price of Rs 2,650. It is also forced to pay 22 per cent taxes (12 per cent forest development tax and 10 per cent royalty) and value-added tax over the base price besides the logistics cost, Rao said.
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Though he did not commit on production cuts, company sources added there could be further reduction in capacity utilisation at Vijayanagar plant due to erratic supply of iron ore. Currently, the company is operating between 75 per cent and 80 per cent of the capacity depending on the supply of iron ore. Recently, the company procured the entire lot of 7 mt of low-grade iron ore (banded hematite quartzite) with Fe content between 38 and 45 per cent. However, the recovery of steel from this ore is very low. It is almost 30-40 per cent, the company sources said.
“The slow progress in according approval to several mines has delayed the restarting of mines in the state. At least eight mines from both Categories A and B are awaiting final approval to restart mining. The state government should process their application faster,” Rao said.
These mines, if approved, can add another 8 mt of iron ore annually. However, these mines may have to wait for between six months to 24 months before getting all approvals, mining industry sources added.
Already, 54 sponge iron makers out of 72 units have shut down their operations due to a shortage of iron ore. Smaller steel makers like Kalyani Steel, BMM Ispat and Sathavahana Ispat are operating between 30 per cent and 60 per cent of their capacity annually.