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COMPANY QUICK COMMENT
The Supreme Court has asked the miners in Karnataka to supply 1.5mn tonnes of iron ore/month from the inventory to steelmakers and associated industries in Karnataka through E-Auction. This would mean 50% of the total requirement can be met through this arrangement. However costs are expected to increase on account of this. We believe the stock is building in both lower volumes and lower margins and volume issues will be resolved by this. We maintain BUY on the stock.
iron ore issues - a temporary solution
JSW Steel has reported that the Supreme Court has asked the iron ore miners to ensure supplies to the domestic steelmakers and associate companies dependent on local iron ore from the inventory lying with them. Total iron ore inventory with the miners in Karnataka is close to 35mn tonnes. The Supreme Court has asked the miners to start supplying 1.5mn tonnes a month, i.e. 50,000 tonnes/day to the steelmakers dependent on the local supplies.
Some key aspects of the decision are as following:
• Iron ore is to be supplied to steelmakers who were already using the local iron ore from Karnataka.
• Iron ore supply will be in proportion of the requirement and no one will be allowed to stock iron ore.
• Pricing will be based on the E-Auction and reserve price will be based on the NMDC iron ore prices (adjusted for the grades).
• Even pellet producers would get iron ore for supplies to domestic companies only - no export related production of pellet to get iron ore.
Steelmakers and other users have been asked by the Supreme Court to submit the details of their requirement and they have to form a plan for the deliveries. JSW Steel expects the modalities to be finalized within a week or two and supplies of iron ore should start.
JSW Steel - roadmap for iron ore sourcing
JSW Steel plans to meet its iron ore requirement through three sources: 1) supplies from NMDC in Bellary region (10-12,000 tonnes/day) 2) supplies from Balaidila mine (10-12,000 tonnes/day) 3) Supplies from the inventory in the system - they would need close to 40% of the total supplies to meet its total requirement.
JSW Steel is confident of securing the above supplies as they have already managed the first two sources and even from inventory they expect to get 50-60% of their requirement 1) close to 50% of the inventory is in the form of fines which JSW Steel can use 2) even as per requirement, supply from inventory will be enough to meet 50% of the total requirement of the region. Karnataka region requires close to 25-30mn tonnes of iron ore for domestic uses i.e. 2-2.5mn tonnes per month.
Please note that we have already built in lower production (50-60% utilization for two months, 8.2mn tonne crude steel production in FY12) in our estimates. Please note that the company is maintaining its guidance of 8.7mn tonne production.
Costs to increase - we have built in lower margins
Because of higher freight rate on securing iron ore from Chhattisgarh and Orissa (on account of higher freight) and some increase in costs on account of E-Auction, we believe iron ore costs would increase by INR 500-600/t, i.e. EBITDA/t impact of close to INR 1000/t.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
COMPANY QUICK COMMENT
The Supreme Court has asked the miners in Karnataka to supply 1.5mn tonnes of iron ore/month from the inventory to steelmakers and associated industries in Karnataka through E-Auction. This would mean 50% of the total requirement can be met through this arrangement. However costs are expected to increase on account of this. We believe the stock is building in both lower volumes and lower margins and volume issues will be resolved by this. We maintain BUY on the stock.
iron ore issues - a temporary solution
JSW Steel has reported that the Supreme Court has asked the iron ore miners to ensure supplies to the domestic steelmakers and associate companies dependent on local iron ore from the inventory lying with them. Total iron ore inventory with the miners in Karnataka is close to 35mn tonnes. The Supreme Court has asked the miners to start supplying 1.5mn tonnes a month, i.e. 50,000 tonnes/day to the steelmakers dependent on the local supplies.
Some key aspects of the decision are as following:
• Iron ore is to be supplied to steelmakers who were already using the local iron ore from Karnataka.
• Iron ore supply will be in proportion of the requirement and no one will be allowed to stock iron ore.
• Pricing will be based on the E-Auction and reserve price will be based on the NMDC iron ore prices (adjusted for the grades).
• Even pellet producers would get iron ore for supplies to domestic companies only - no export related production of pellet to get iron ore.
Steelmakers and other users have been asked by the Supreme Court to submit the details of their requirement and they have to form a plan for the deliveries. JSW Steel expects the modalities to be finalized within a week or two and supplies of iron ore should start.
JSW Steel - roadmap for iron ore sourcing
JSW Steel plans to meet its iron ore requirement through three sources: 1) supplies from NMDC in Bellary region (10-12,000 tonnes/day) 2) supplies from Balaidila mine (10-12,000 tonnes/day) 3) Supplies from the inventory in the system - they would need close to 40% of the total supplies to meet its total requirement.
JSW Steel is confident of securing the above supplies as they have already managed the first two sources and even from inventory they expect to get 50-60% of their requirement 1) close to 50% of the inventory is in the form of fines which JSW Steel can use 2) even as per requirement, supply from inventory will be enough to meet 50% of the total requirement of the region. Karnataka region requires close to 25-30mn tonnes of iron ore for domestic uses i.e. 2-2.5mn tonnes per month.
Please note that we have already built in lower production (50-60% utilization for two months, 8.2mn tonne crude steel production in FY12) in our estimates. Please note that the company is maintaining its guidance of 8.7mn tonne production.
Costs to increase - we have built in lower margins
Because of higher freight rate on securing iron ore from Chhattisgarh and Orissa (on account of higher freight) and some increase in costs on account of E-Auction, we believe iron ore costs would increase by INR 500-600/t, i.e. EBITDA/t impact of close to INR 1000/t.
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