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Indian steel producers staring at production disruption in 2020 - Ind-Ra

Steel News - Published on Wed, 22 May 2019

Image Source: Deccan Chronicle
India Ratings and Research believes that Indian steel production would be significantly affected if the auction of the mines which would complete 50 years of operations by March 2020 is materially delayed. Consequently, the credit profile of merchant miners and thus non-integrated steel players could come under stress. According to Ind-Ra’s assessment “The license of about 288 merchant mines will expire by March 2020, out of which 59 mines are under operations. Majority of these 59 mines are iron ore mines situated in Odisha and Karnataka with around 85 million tonnes of approved annual capacity. We estimate that around 60 million tonnes of the actual production of iron ore from these mines could be disrupted. Considering that the auction process on an average takes three to six months to complete, a delay in initiating them until the latter half of 2019 due to the Lok Sabha elections in the country could affect the timely auction of mining lease. There is limited historical data on the auctions of mines. Of the last major auctions of about 88 iron ore deposits, only a handful have started to operate. Auction to operation process gets elongated typically due to delays in obtaining environmental, wildlife and forest clearances.”

Ind-Ra expects steel players such as JSW Steel Rashtriya Ispat Nigam Limited and other steel companies, which are either under stress or referred to National Company Law Tribunal, to increase their production in 2020. Absence of domestic iron ore supply thereby will necessitate an increase in the import of iron ore mix, potentially leading to an increase in the cost of production. However, low-grade optionality is available for players such as JSW Steel which has a beneficiation facility. Furthermore, smaller companies which are away from ports and operate in the landlocked region could face disruption in operations as they are primarily dependent on the domestic merchant miners for iron ore.

India’s biggest miner, NMDC Ltd, may be able to increase the volumes to 4-5mtpa with evacuation facilities being placed at its captive mines. Its 7mtpa Donnimalai operations can re-start operations after the settlement of a dispute between the government agencies on premium payment. The imported iron ore is at least 150% of the domestic procurement prices. An NMDC price for fines (62% Fe) at end-March was INR2,000/tonnes compared to USD70/tonnes prices for imported iron ore (exclusive of duties). India Iron ore imports are less than 10% of the overall requirement (estimated 13mtpa for 180mtpa requirement). The iron ore prices have already gone up due to the disruption at VALE Ltd; however, the agency believes the situation to normalise in 2HFY20, as international prices soften due to improved global supplies. Given the import is an expensive option, Ind-Ra does not expect the import volumes to go up substantially.

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Posted By : Sanju Moirangthem on Wed, 22 May 2019
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