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IRON ORE PRICES SET TO RiSE FURTHER

Iron ore prices have risen by 75% since last year, and look set to go up further. Demand from China pushed up ore prices to $200 a tonne in March 2008. This incentivised rampant illegal mining in Karnataka and Goa. According to Commodity Online, iron ore is likely to sell above $150 a tonne till 2020.

Ore prices are not the only challenge. Even availability is. Over 40 companies are now fighting it out at the ore auctions. About 400,000 tonne went up for bidding on September 14; JSW managed to get less than half of it. It also got 1.3 million tonne out of the 2 million tonne put up for auction on October 4.

But JSW Steel isn’t confident of getting adequate quantities of ore in the auctions. It has cut production to just 3 million tonne. It has been forced to let go of old buyers in real estate and infrastructure and focus only on lucrative automotive clients.

“Considering the red-tapism in various issues associated with the release as well as pricing of iron ore in Karnataka, we believe the routine supply of ore from these mines for JSW is not likely to flow in the short term,” says Ravindra Deshpande, an analyst with Elara Capital.

The industry understands Jindal’s plight. “Any large steel company would need assured supplies of ore to operate in the long term. Steel companies have been facing difficulties due to the crisis,” says NMDC chairman Rana Som. “Initially there may be hiccups but once continuous auctions take place, the flow gets better,” he adds.

JSW bids aggressively at all e-auctions conducted in Karnataka. According to an official familiar with the auction process, Jindal executives keep a close tab on the ore that would feature in each lot. “Typically, each lot contains about 4,000 tonne, which is equal to the amount that can be carried by a train rake, the most common form of transporting iron ore. They also try to find out the grade of ore to be offered in each auction and then bid aggressively. Being big helps their case,” the official said.

“Companies such as JSW Steel have been successful in recent auctions,” says NMDC’s Som. The state-owned MSTC conducts the actions under the supervision of the Supreme Court-appointed Central Empowered Committee.

JSW Steel misses not owning an iron ore mine. “Their biggest disadvantage is not going in for iron ore mines early on,” says the head of a rival company that competes with JSW in various product categories. “They realised it three-four years ago, but by then, it was too late,” he adds, asking not to be named. Iron ore and coal account for 75% of the total production cost for any steel company.

In 2008, JSW acquired the mineral concessions for eight mines in Chile, which have been producing about 1 million tonne. But Jindals can’t cart this ore to India due to prohibitive freight expenses. Ironically, JSW sells the Chilean ore in the open market.

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