JSW Steel to bid for Odisha, Karnataka mines even as it cuts capex guidance for FY20

Nov 5,2019

Even as JSW Steel-cut its capex guidance for FY20, the company is looking at bidding for a majority of the 20 iron ore mines in Odisha to secure raw material for its greenfield and brownfield projects. The company is also looking to bid for mines in Karnataka, where it has already secured nine iron-ore mines.

Jayant Acharya, the director, JSW Steel, said the company was bidding for mines given the 20 million tonnes per annum greenfield project in Odisha. “The mines in Odisha will primarily help the company secure the future raw material needs of the new plant in Odisha, but it will be taken to other plants as well to meet the requirement,” Acharya said.

JSW Steel has undertaken steel capacity expansions at the Dolvi plant to 10 million tonnes per annum from 5 million tonnes per annum, and at Vijayanagar Works to 13 million tonnes per annum from 12 million tonnes per annum, which would increase the requirement of iron ore from current 32.4 million tonnes per annum to 43.2 million tonnes per annum. JSW steel meets around 8-9 percent of its total requirement from captive mines, while the rest is sourced from NMDC and other miners. In H1FY20, JSW Steel’s captive iron ore mines volume was around 2 million tonnes and it is expected to cross 3 million tonnes in H2FY20.

According to sources close to the development, the Odisha tender has a reserve price or premium requirement of 15-50 percent depending on the resources available at the mines. This would mean the miner will have to pay the government between 15-50 percent of the price per tonne of iron ore as premium. The cost of iron ore in Odisha ranges between Rs 2,000 per tonne to Rs 6,000 per tonne depending on the grade.

The Odisha mines would be viable for JSW Steel in the long term only if it is used for greenfield plant near the mines. Otherwise, the landed cost would be higher compared with the iron ore available in Karnataka where JSW Steel plants are located. The ore is available at `3,000 per tonne to Rs 4,000 per tonne in Karnataka with an additional `500/tonne for transportation. It is better to import a higher grade iron ore from abroad for `6,500 per tonne than to import from the east coast of India to the west coast, sources said.

The steel ministry has planned a target of 300 million tonnes per annum of steel capacity by 2030 from 100 million tonnes per annum at present that would require additional iron ore mining leases in the coming years. The Federation of Indian Minerals Industry said India is set to auction 48 mining leases of independent miners before March 31, 2020, which will be effective for 50 years.

The federation has, however, expressed concern over the delay in auctions of mining leases that are due to expire in March. It believes that the delays could disrupt India’s iron ore production and raise the prospect of higher imports. Even Citigroup had forecast last month that the country could become a net importer of 25 million to 30 million tonnes of iron ore as the expiry of mining leases threaten to disrupt nearly a quarter of India’s output. This would be highest in records since 2009.

Rating agency ICRA Limited said, “The slow pace of auctions could push the domestic iron ore market to a deficit from a surplus, and lead to a disruption of as much as 55 million tonnes of production capacity in the next fiscal year.”

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