Acute shortage of iron ore in Karnataka and rising prices for domestic ore has prompted steel makers to rework their strategy to source the raw material. Mills are not only importing iron ore but also slowing their purchase of domestic ore through e-auctions.
JSW Steel, which had originally planned to import six million tonnes of ore this year, has slowed its offtake from auctions and is now planning to almost double imports. The company also sources ore from other states such as Odisha.
“Steel mills in Karnataka require 35-36 million tonnes of iron ore per annum. However, the availability has fallen to less than 50 per cent, at 16 million tonnes. Taking advantage of the situation, miners have raised their prices at e-auctions. So, there is no choice for us but to increase imports,” Vinod Nowal, deputy managing director of JSW Steel, told Business Standard.
According to Nowal, the landed cost of iron ore sold through e-auctions is around Rs 5,600 a tonne against imported ore, which costs Rs 6,300 a tonne after adding inland cost and freight (CFR). “Though imported ore costs slightly higher than the domestic ore, considering the good quality of imported ore, we are importing. Our strategy is very clear. We want to first use local material and then look at imports,” he added.
Base prices of iron ore at e-auctions in Karnataka have gone up 41 per cent to Rs 3,800 a tonne from Rs 2,700 a tonne about three years ago. Besides, steel mills also have to pay 27 per cent taxes in the form of 15 per cent royalty and 12 per cent forest development tax and five per cent value-added tax. This has dented their margins considerably, Nowal noted.
Considering low prices in the international market, which are ruling at $79-83 a tonne (CFR), the company intends to import 10 million tonnes during the current financial year. Of this, seven million tonnes will be used at its Vijayanagar (Karnataka) steel plant, which has a capacity of 12 million tonnes. Three million tonnes will be used at its Dolvi (Maharashtra) and Salem (Tamil Nadu) steel plants.
JSW Steel has found advantages in imported ore compared to domestic material. The imported ore contains less impurities such as alumina and silica. Plus, it hardly contains one per cent alumina and two or three per cent of silica compared with five per cent alumina and five-to-seven per cent silica in domestic ore.
“Lower impurities means higher productivity and less breakdowns. Blast furnace life will also increase with imported ore. So, even though the imported ore costs around Rs 1,000 higher than domestic material, we find it useful,” Nowal explained.
On the other hand, smaller steel mills such as Kalyani Steel are finding it even more difficult to cope with the current situation. Kalyani is also thinking of importing iron ore this year.
“While the quantity of production in Karnataka hasn’t improved, the prices have increased. Our costs have gone up considerably as the quality of available iron ore has deteriorated. We are caught between the proverbial ‘devil and the deep sea’. We are also finding it tough to import because no one gives us ore in smaller quantities,” said R K Goyal, managing director, Kalyani Steel.
Goyal added that the company is exploring various options to import iron ore if the situation worsens in Karnataka.
Source: Business Standard
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