Iron Ore Shortage Cuts Down JSW Steel’s Production

JSW Steel announced its steel production numbers for the month of February 2012 and these have shown quite a negative turn in view of the fact that the company was actually witnessing quite a decent run-up in production. If we look at the production numbers of the last three months we can clearly see an uptrend with the utilisation level moving towards 90 per cent capacity. However, in February the capacity utilisation has come down to 67 per cent with production of 0.610 million tonnes as against 0.810 million tonnes in January 2012.

In a note submitted by the company to the BSE, this fall in production has been attributed to the use of inferior grades of iron ore bought from the ongoing e-auctions route. The 25 million tonnes of iron ore stock, as mentioned in an earlier report, has been on the verge of completion and the industry needs immediate relief. A statement released by Sesagiri Rao, Joint Managing Director and CFO, to the BSE states that with the 25 million tonnes of iron ore getting exhausted, the quality of iron ore being offered through e-auctions has been deteriorating substantially.

At the beginning of the year the company had estimated total production of 8.75 MTPA and 9 MT in sales volume for FY12, which now has been reduced to 7.8 MTPA and 7.5 MTPA respectively (down by 14 per cent). In the last 11 months of the fiscal, the company has produced 6.76 million tonnes of steel and to achieve its target of 7.8 MTPA, it has to produce another 1.032 million tonnes in the next one month with utilisation level of more than 100 per cent. Looking at the current situation of iron ore shortage in Karnataka it is quite evident now that the company will not achieve its production target for fiscal 2012.

As per the company’s note, the available iron ore for steel production will not last for more than two months and the only solution lies in the Supreme Court lifting the ban on mining in Karnataka and allow operations in at least the ‘A’ category mines. In the latest report submitted by the investigation committee, there is a suggestion of providing clearance to 45 mines under the ‘A’ category to continue with their operations. These include miners like NMDC, Minerals Enterprises Ltd, Mysore Minerals Ltd, and others. The committee has also recommended capping iron ore production to 30 MTPA in the Karnataka region as compared to 45 MTPA produced in 2008-09.

Presently, with the limited flow of iron ore from the allocated stock piles, JSW Steel has managed to overcome these issues in the immediate term. However, a permanent solution is what is called for to help the industry function normally. JSW Steel runs a 10 MTPA steel plant and its total iron ore requirement is of about 18-20 MTPA. With the new capacity coming up, the requirement for iron ore will be more. Also, there are a large number of small sponge iron ore players in the region. Therefore the important issue will be about the fair allocation of 30 MT of iron ore between the various players.

In conclusion, the non-availability of iron ore in the near term may witness a sharp downturn in steel production in the coming months, thus leading to a huge set-back for the company and for the sector.