Maharashtra is the new focus of JSW Steel
Mumbai: JSW Steel Ltd
is shifting its focus to its smaller steel plant in Maharashtra, which
the company thinks is better placed to support its expansion plans,
compared with its flagship plant in Karnataka, where difficulty in raw
material sourcing has curtailed growth.
The 3.3 million tonne (mt) Dolvi plant in the Raigad district of Maharashtra, that came to JSW Steel
from its acquisition of Ispat Industries Ltd in 2010, is seeing new
investments, while the main plant in the Bellary district of Karnataka,
with a 10 mt capacity, is still waiting to secure raw material via
acquisition of iron ore mines.
“The new mother plant will be Dolvi,” said a senior
executive in JSW Steel, not wanting to be named since plans have not
been publicly announced. “There is a lot of activity taking place
there.”
A capacity addition of 1.7 mt has been planned for Dolvi,
which will push up the total capacity at the plant to 5 mt. A second
company official, who also did not want to be named, said the plan is
likely to be implemented in the next few months.
But the company’s head of strategy did not disclose the timeline.
“We will be expanding capacity of Dolvi plant in future
as it a very good location for brownfield expansion. However, we have
not yet decided the timelines,” said Prashant Jain, head of corporate strategy and development at JSW Steel.
The second official said that JSW had made new
investments for a pellet and a coke oven plant, which are in trial phase
and almost ready for production. The company has also invested in using
flare gas—a by-product—to generate 25-30% of the power required by the
plant.
Other than the 1.7 mt expansion which is on the cards,
there is scope for further expansion at Dolvi, which is spread across
1,200 acres, with an eye on the export markets from the port-based
location, the two people said. The port, though in west India, can also
ship in iron ore from Odisha on the east coast via the cheaper sea
route.
Sajjan Jindal-led JSW Steel is India’s third largest steel maker with a 14.3 mt capacity after Tata Steel Ltd and Steel Authority of India Ltd, yet it is considered to have the most aggressive strategy for growth.
“I won’t be surprised if they work on their Dolvi expansion earlier than expected,” said Rakesh Arora, managing director and head of research at Macquarie Capital Securities (India) Pvt. Ltd. “The only problem if they do it too fast is that it can make their debt rise.”
The consolidated net debt of JSW Steel stood at Rs.19,899.04 crore in the fiscal year ended March 2013 compared with Rs.17,468.62 crore in the fiscal year ended March 2012.
The company’s flagship Karnataka plant, set up in 1994,
was rapidly expanded with modern facilities and the environmentally
friendly Corex technology used for the first time in India, betting on
the country’s rising demand for steel, but the expansion was risky
because JSW Steel did not get any captive iron ore mines.
Problems for the plant began around 2005, when China
started importing large quantities of iron ore from India, including
Karnataka that is the second largest iron ore producing state, to build
infrastructure for the 2008 Olympics. The export of ore from India
reduced the amount of raw material available for the steel plant in
Karnataka
These problems were further compounded when illegal
mining and environmental issues were highlighted, which led to a ban on
iron ore mining in the state from 2010-2012, vastly shrinking the
company’s iron ore supply. JSW itself has a Central Bureau of
Investigation case pending against it.
Now, even though iron ore mining has restarted in a limited way, it doesn’t fully meet JSW Steel’s needs.
Meanwhile, the cost of importing raw material into
Bellary, which does not have a port nearby unlike Dolvi, is higher,
which is why the company is now betting on the Maharashtra plant.
“Very soon the company will announce a turnaround in the
erstwhile Ispat Industries plant,” said the first JSW Steel official,
referring to an estimated Rs.9,000 crore in debt that the company took on at the time of Ispat’s purchase, according to a December 2010 Bloomberg story.
Shares of JSW Steel have outperformed the S&P BSE Sensex and the S&P BSE Metal index over the past one year.
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