Mills in place, JSW starts securing raw material

JSW Steel will now focus on increasing its natural resource base across the world, after having lined up its brownfield and greenfield capacity expansions.

“In the last decade, we had aggressively focused on capacity expansion. Now that we are on the road to reach a critical mass in capacity, our next aim is to secure our raw material needs,” Sajjan Jindal, vice-chairman and managing director, JSW Group said on Monday.

Jindal said the company is keenly looking at assets in countries such as New Zealand, Mongolia and Afghanistan and in the North American region, though nothing has yet been finalised.

Securing natural resources will not only give the company a cushion from random price fluctuations of iron ore and coking coal, the two main raw materials needed to manufacture steel, but also lift the company’s margins substantially by saving costs through backward integration.    

“The company currently has 10% backward integration in iron ore and 0% in coking coal. Even if we look at a backward integration of 100% in iron ore and 50% in coking coal in the next few years, it will mean a benefit of $200 per tonne for the company,” said Bikash Bhalotia, metals analyst with brokerage firm Pinc Research.

According to Bhalotia, Naveen Jindal-controlled Jindal Steel and Power is the only player in the sector with adequate backward integration at present and enjoys an enviable margin of close to 40%. Considering JSW Steel’s efficient operations, the company can reach a similar margin if it is 100% integrated in iron ore and 50% in coking coal.

Bhalotia said, however, that it will be an uphill task for the company to scale up to that level of backward integration in both the raw materials.

Jindal said the company has already taken its first step towards the goal of securing raw material needs by operationalising its iron ore mine in Chile and coking coal mine in West Virginia, US in the last quarter.

“By the end of the current fiscal, we are targeting production of a million tonne in iron ore from Chile and half-a-million tonne in coking coal from the US,” he said on the sidelines of announcement of the company’s annual results.

JSW Steel plans to increase the capacity of its flagship Vijayanagar Steel Plant from 10 million tonne per annum (mtpa) to 12 mtpa in the next three years. It will also set up a cold rolling complex at the site to take its cold rolling capacity from 1 mtpa to more than 3 mtpa by FY13-14, said Jindal.

The company is expected to complete expansion of its Vijayanagar facility during this quarter, thereby raising capacity to 10.2 mtpa. After this, its total steel manufacturing capacity will reach 14.3 mtpa, requiring up to 23 mtpa iron ore and around 18 mtpa coking coal.

For the quarter ended March, JSW Steel reported a 16% jump in the profit after tax to Rs 833 crore, riding on a 36% growth in net sales to Rs 7,032 crore.