JSW Steel's main plant battling iron ore shortage

NEW DELHI Wed Dec 18, 2013 8:09pm IST

Seshagiri Rao, joint managing director and group CFO of JSW Steel, listens to a question during the Reuters India Investment 2011 Summit in Mumbai November 21, 2011.REUTERS/Stringer/Files

Seshagiri Rao, joint managing director and group CFO of JSW Steel, listens to a question during the Reuters India Investment 2011 Summit in Mumbai November 21, 2011.

Credit: Reuters/Stringer/Files

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NEW DELHI (Reuters) - JSW Steel Ltd(JSTL.NS) said its 10 million-tonne-per-year plant in Karnataka will not operate at more than 80 percent capacity in the near future as mining restrictions have stifled the supply of iron ore, a key feedstock.

Difficulty in sourcing iron ore has forced the company to go slow on plans to nearly triple annual capacity to 40 million tonnes in the next decade, which, along with ArcelorMittal SA (ISPA.AS) and Posco (005490.KS) recently pulling out of projects, could derail India's steel production ambitions.

"After having invested here there is no way you can plan to get iron ore from outside of Karnataka (on a long term basis)," Seshagiri Rao, joint managing director of country's largest private steel producer, told Reuters on Wednesday.

"Logistically it is not possible."

Restrictions aimed at curbing illegal mining and delays in obtaining various approvals have meant that Karnataka's iron ore output is expected to be 18 million tonnes this fiscal year compared with the state's requirement of 40 million tonnes.

JSW Steel, whose second biggest shareholder JFE Steel is the world's ninth largest steel company and a unit of Japan's JFE Holdings Inc (5411.T), will have to wait for supply in Karnataka to improve to raise the plant's capacity from 70-80 percent currently, Rao said.

He did not say if that would affect JSW Steel's plans to produce 9.25 million tonnes of steel this fiscal year, a forecast that assumed a sufficient quantity of iron ore would be available. Its other plants in Tamil Nadu and Maharashtra make up its 14.3 million tonne capacity.

Iron ore production in Karnataka is expected to rise to 22.18 million tonnes in the year ending March 2015, according to a Karnataka government petition with the Supreme Court seeking to relax an annual mining cap of 30 million tonnes.

Capacity utilisation at steel mills fell to a low of 81 percent last fiscal year, making India a net steel importer for at least the fourth straight year. The situation had been expected to improve this year after the Supreme Court in April conditionally lifted a mining ban in Karnataka, but very few mines have restarted.

India produced 77.6 million tonnes of steel last fiscal year, well below its capacity of 90 million tonnes. Asia's third-largest economy, the world's fourth largest producer of steel, is targeting a capacity of 142.3 million tonnes by 2017 and 300 million tonnes by 2025.

But delays in obtaining iron ore mining rights and opposition to land acquisitions forced South Korea's Posco and top steelmaker ArcelorMittal earlier this year to pull out of two projects with planned capacity of 18 million tonnes in total.

To ensure steady supply of iron ore, JSW Steel is looking to buy UK trader Stemcor's Indian assets that include an iron ore mine and processing facilities in eastern Odisha state, valued by an industry source at up to $750 million.

"We're doing due diligence but have not taken a call," Rao said, adding that the final date for submitting bids was January 6 and a deal should be in place in the first half of next year.

"We are keen of course," he added.

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