02:22 PM (Wed): Iron ore from NMDC stopped; JSW steel to get aggressive

Mumbai, Oct, 12 (EPC News): With the Supreme Court’s direction that NMDC’s production in Karnataka is e-auctioned, bypassing its long term contracts with domestic steel players, iron ore supply from NMDC to JSW Steel has stopped. This has reduced the availability of iron ore for JSW Steel and led to its decision to cut production to 30% of capacity from around 70%.

JSW Steel’s iron ore procurement costs would increase as the current scarcity of iron ore on account of the ban on iron ore mining in Karnataka is likely to result in aggressive bidding up of iron ore prices, when the NMDC iron ore comes up for e-auction. JSW Steel has also been sourcing iron ore from NMDC Chhatisgarh, which will entail higher iron ore costs due to high freight costs. However, JSW Steel has procured 1.8 kilo tonne of iron ore from three rounds of e-auction of iron ore totaling close to 3.5million tonnes from the total inventory of 25million tonnes to be e-auctioned in Karnataka.

“In view of the iron ore supply from NMDC being stopped, we lower our volume assumptions and increase our iron ore cost assumptions for FY12E and FY13E. We lower our steel sales volume assumptions by 14.3% and 8% for FY12E and FY13E to 6.9million tonnes and 8.7million tonnes respectively, and increase our average iron ore cost assumptions by Rs284per tonne and Rs273per tonne for FY12E and FY13E to Rs3701per tonne and Rs3301per tonne respectively,” says Aditya Birla Money research report.

“The Lok Ayukta report on illegal mining in Karnataka had alleged that JSW Steel had received 1.297million tonnes of iron ore by way of truck overloading between April 2009 to June 2010, and that no royalty had been paid on such,” said the report.

EPC News Bureau