JSW Steel sees improved production in Nov 2011

JSW Steel, one of the major steel producers in the country, has been facing problems over iron ore procurement. However, the problem seems to be easing in Nov 2011, as the utilisation levels have gone up to 68%, against 60% in the previous month. In a statement released to the BSE, the company has stated that the increase in utilisation is due to the increased receipt of iron ore supplies from e-auctions. It also stated that the consistent availability of iron ore at fair price is crucial to maintain or to improve capacity utilisation further.

In Nov 2011, the company received iron ore more frequently than it had received it in the last couple of months. It received 37% of the total iron ore at the plant site, which was purchased through the e-auction route. The continuous flow of the iron ore to the site is the biggest relief to the company, as logistical constraints were preventing the the auctioned iron ore from reaching on time.

The production of crude steel during the month has grown by 18% to 6 MT. The 18% growth and higher utilisation has come in line with the company’s expectation of producing 7.8 MT in FY12 at 70% utilisation. In fact, the company had to reduce its FY12 production estimates from 8.5 Mn tonnes to 7.8 MT after the ban on iron ore mining.

We believe that iron ore procurement will improve slowly on the back of the improved logistics situation. However, the question that still remains is will it be good enough to achieve the desired output level in the coming months. Also, will we be able to see similar utilisation levels in the coming months as well. This largely depends on further improvement on the avilabilty of iron ore at fair price on a timely basis.

The company's production numbers in the last 8 months stood at 4.59 MT. Therefore, in order to achieve the targetted production of 7.8 MT in FY12, it will need to scale its production levels further to 3.21 MT in the next 4 months. This, we believe, is quiet challenging, because it will involve scaling up the utilisation level further to 75%-80%, following lower utilisation at 60% witnessed by the company in the previous quarter. On the whole, the scenario looks difficult for the company to be able to achieve the desired output levels.