JSW Steel To Skip Odisha Ore Mine Auctions Due To Macroeconomic Slowdown
A laborer walks near the JSW Steel Ltd. manufacturing facility in Dolvi, Maharashtra, India (Photographer: Dhiraj Singh/Bloomberg)  

JSW Steel To Skip Odisha Ore Mine Auctions Due To Macroeconomic Slowdown


After bidding aggressively for the Karnataka iron ore mines, Sajjan Jindal-led JSW Steel Ltd. is won’t participate in the Odisha mine auctions as it is not willing to pay a premium given the demand slowdown for steel and an economy in tatters, say sources.

The bidding for Odisha iron ore mines will be conducted in two phases, with the first this month and the second in September, and eight mines are expected to auctioned in the August round.

When contacted, a JSW official declined to comment on its decision to skip the Odisha auctions. But the official said it bid very aggressively for Karnataka iron ore mines at almost 100 percent premium to source ore for its flagship 12 million tonne per annum Vijayanagar plant.

JSW Steel was declared the preferred bidder for three iron ore mines with an estimated resource of around 92.97 mt in the Karnataka auctions held last month.

The official said for JSW, cost of logistics in Karnataka is much lower as the mines are located near the plant resulting in savings on transportation cost.

Currently, JSW Steel has an 18 million tonne per annum installed capacity and has a target to more than double this to 45 mtpa over the next decade.

"No one will bid aggressively as a 25-30 percent premium for merchant leases is a reasonable. Odisha has huge supply potential but there is not enough demand. Thus there is a potential risk to pay a huge premium," the source told PTI.

Moreover, capital cost for developing iron ore mines in Odisha will be much higher compared to other states due to the National Environmental Engineering Research Institute's mandate to set up a slurry pipeline, railway siding, conveyors in case of mines producing more than 5 mtpa.

Almost all the Odisha mines have a production capacity of over 5 mt, which calls for not only huge capital investment but also execution risks apart from logistics constraints, the source explained.

According to industry experts, as of now while miners do not have any obligation to produce a particular quantum, but can reduce production as per market demand.

“But with the new NEERI (National Environmental Engineering Research Institute) mandate, once the mines are auctioned, new owners need to compulsorily produce at 80 percent of the rated capacity even if there is no matching demand. That means ore availability will go up after the auctions,” an expert pointed out.

Odisha produced around 120 mt iron ore in FY19, or more than half the national production and as per NEERI, the this can go up to over 180 mt annually.

The expert also said there is a huge bottleneck in transporting iron ore from Odisha mines to end-use plants or ports due to restriction on transportation timing, non- availability of rakes, and the scarcity of railway sidings.

"Also, co-existence of small and large players is important in the steel industry. Small players should bid and secure their raw material at a reasonable premium. There are many small mines in Odisha which are ideally suitable for small plants and do not require investment in infrastructure," he added.

Also read: Q1 Results: JSW Steel’s Profit More Than Halves, Misses Estimates

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.