JSW gets 1.3 million tonne more ore at third e-auction

JSW Steel, which was on the verge of shutting its flagship Vijayanagar plant, secured 1.3 million tonne of iron ore at the third round of e-auctions which happened on Tuesday.

The fuel-strapped company has now ensured 1.8 million tonne through three rounds of e-auctions of inventory lying in Karnataka.

Experts said while the allotment has happened at a higher price and will dent the company’s profitability in the short term, the ore at least gives visibility to operations till the end of this month.

Vinod Nowal, CEO of JSW Steel, said the company is now hopeful of ramping up production to 10 million tonne per annum (mtpa) by the end of October.

“Currently we are running at 35% capacity utilisation and now with 1.3 mtpa, we will gradually start ramping up in the next two days and can reach full utilisation by this month-end,” he said.

In the third round of e-auction, Nowal said the company has been allotted grades of iron ore in the range of 59% to 63% Fe content and price with an average price of Rs2,500 per tonne.    

This is Rs500 per tonne more than at the last e-auction.
JSW Steel has secured high grade 63% lumps at a very high premium of Rs5,100 per tonne and lowest grade 59% at a price of Rs2,100 per tonne.

However, Nowal said the outlook is still bleak for the industry as the demand from auto and real estate segment is still lacklustre and the industry is pinning its demands on the festive season.

Bikash Bhalotia, analyst with brokerage Pinc Research, said while Rs5,100 per tonne for the highest grade is very high, the quantity is not expected to exceed beyond a lakh tonnes. “The rest 12 lakh tonnes could average at a blended price of Rs3,500 per tonne,” he said.

He said the landed cost for JSW Steel from the third round of e-auction will be around Rs5,000 per tonne which is around Rs3,000 per tonne less than the landed cost for Chinese players.

But compared with Indian companies, this cost of production for the company could go up by Rs2,200 to Rs2,400 per tonne.

Nowal said the company is still testing the market and might go for another round of price rise as cost of production for JSW Steel is rising with each e-auction.

In the last week of September, steel companies in India hiked prices of all kinds of steel by Rs1,000 to Rs1,500 per tonne and gave an indication for another round of hike in October.

However, companies did not increase price for their long term customers and original equipment manufacturers, and experts say a massive hike is due for them as well.