State-owned NMDC Ltd is betting on the expansion plans of steel companies to find a market for the additional iron ore it plans to produce from its mines in the next couple of years.
The company currently produces about 30 million tonne, primarily from its mines in Chhattisgarh and Karnataka. By opening three more mines, including two in Chhattisgarh and one in Karnataka, it could take its production capacity up to about 50 million tonne.
However, analysts feel NMDC would be left with significant surplus ore in the years to come, owing to the plans of the private sector steel companies to own mines both in India and abroad.
In fact, some of the new steel plant projects proposed by these companies, particularly in states such as Karnataka have been tagged to the availability of iron ore mines for captive use.
“Even if these companies get their captive mines, we would still be the biggest supplier since these mines would not completely take care of the iron ore requirements of these companies. In fact, the additional 20 million tonne of additional capacity we plan to achieve has almost been tied up,” S Tyagarajan, director (finance), NMDC said.
According to him, several private sector and public sector players including RINL, Essar and JSW have decided to expand their capacities and the additional ore produced by NMDC would cater to the expanded capacities of these steel companies.
“Currently, out of 30 million tonne, about 22 million tonne is being sold by NMDC in the domestic market with RINL and Essar as the biggest customers. Even in future, we are planning to sell about 90% of the ore produced by us in the domestic market. We enter into long-term contracts with our customers ranging up to five years and there would be no surplus iron ore left with us even if we expand the production to 50 million tonne,” he said.
Though NMDC is setting up a steel plant in Chhattisgarh on its own, the iron ore requirements of this plant would be taken care of by two mines tagged to the steel plant. “Our iron ore production expansion would be available for sale in the market. Our steel plant would have its own iron ore mines,” he said.
While the price agreements with the domestic buyers from the company are set to expire on March 31 this year, the agreements NMDC has in Japan would come up for review in April 2011.
The government, which owns about 98% in NMDC, is currently divesting about 8.38% of its stake in the company in the market. The issue would be open from March 10 to 12 and the price band for the offer is expected to be announced on March 9 through the book building route.
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