JSW steel crude steel production numbers for October month

JSW steel one of the major steel producers in the country has been facing problems over iron ore procurement. This was due to the mining ban in Karnataka which enabled them to reduce their crude steel production levels to 60% below the expectation of 80% as guided by the company for FY12 in the beginning of the fiscal year. After the ban the company has reduced its production estimate to 7.8 Million Tonnes for FY12.

JSW steel is the only company who has been largely hit by the mining ban as compare to its peers. And despite several issues such as low demand, shortage of Iron ore, it has posted decent sales numbers. The sales volume of the company in the September quarter grew by 19% which came as a surprise to the investors. When we spoke to the management in the meet they said that they have remained resilient in the tough periods.

Can we see the similar strength in coming quarters as well and to know that we have been closely watching the company’s performance and events in the steel sector which will give us some indication on the performance in the coming quarters?

The company has now released the October month production numbers which grew by 2% on YoY basis at 5.70 lakh tonnes. The capacity utilization continues to remain at 60% levels which are of concern keeping in mind the expected output desired by the company of 70% in the fiscal year. And considering the iron ore shortage in Karnataka the question that arises is can JSW steel achieve the same in a scenario where demand has slowed down due to continuous hike in the interest rate and slower investment plan?

Let us look at the production numbers which will give us some idea to make assumption in the coming quarters. The Total production in last 7 months stood at 3.99 million tonnes and it will have to scale it to the level of 3.81 million tonnes in next five months to achieve the 7.8 mn tonnes production which is at 70% capacity utilization. We believe to achieve the desired production level the company has to largely depend on two factors that is iron ore availability and demand off take in the country.

Despite opening the e-auction route for the iron ore purchase the problems has not ended here as the auctioned iron ore has not been reaching on time to plants due to logistic constraint in movement of ore which remains in the  October month as well as stated by the company in the filed document on  BSE. On the other hand demand has also slowed down in the current fiscal year both these factors remains of major concern in achieving the desired output. As per the JPC data the demand has merely grown by 1.8 per cent YTD. And this doesn’t look to improve in the coming quarter due to the tighter lending situation which has delayed a lot investment plans and projects in the country impacting the growth in demand from the construction and infrastructure sector. 

Looking at the October production numbers which grew by only 2% it seems that company is still facing problems on iron ore procurement and if it continues in the near future than it will be a challenging task for the company to achieve the desired output.    

However company in With respect to the present scenario, has said that the demand in India has remained stable. During the September 2011 quarter, the demand witnessed some impact because of temporary issues in the country. Further, the company has increased its steel prices by 3-4%, and expects it to remain flat during the December 2011 quarter.