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JSW Steel (JSTL.BO) Rs610.50
Negative News – Estimates Under Review Equity Research
JSW Steel cuts utilization on iron ore shortages and supply delays
News
JSW Steel in a conference call today said that it had cut utilisation at its
10mn tpa Vijayanagar steel plant to 30%. This was due to an acute
shortage of iron ore in Karnataka and delays in supplies of iron ore
procured through the Supreme Court appointed e-auction process on 14th
Sept. For context, on July 29 the Supreme Court of India had ordered the
suspension of all mining activity in the Bellary district of Karnataka after a
series of illegal mining allegations surfaced. A week later, the Supreme
Court passed an order allowing the state-run NMDC to operate its mines
for production of iron ore in the state. The Supreme Court allowed the
release of iron ore inventories lying idle at mine heads through an eauction system, being facilitated by the state owned MSTC. In the first such
auction held on 14th Sept, a portion of iron-ore sold was priced very high
finding no takers. Higher grade ore, used by the sponge iron industry, has
been priced at Rs. 3,700 a tonne. JSW Steel had secured about 100 kt of the
high grade ore, but stated that the ore bought on September 14 is only
being received now. This delay is caused by administrative bottlenecks in
securing transportation permits and a sub-optimal pace of paperwork.
Analysis
The company expects the process to be streamlined in another 10 days.
However, the lack of iron ore availability has led to a curtailed production
rate. For the past 2 months, the company was operating at about 70%
utilisation rate, which has now been scaled down to 30% utilisation. The
company clarified that they have not shut any furnaces, but are operating
all furnaces at a lower rate, so that utilisation may be ramped up quickly
when iron ore supplies normalize. The company is hopeful that the
administrative processes will be smoothened in the next few days, when
the second round of auctioning is expected on Sept. 29th.
Implications
Pending further clarity on iron ore availability and timelines of mining
suspension, we put our estimates and TP under review.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
JSW Steel (JSTL.BO) Rs610.50
Negative News – Estimates Under Review Equity Research
JSW Steel cuts utilization on iron ore shortages and supply delays
News
JSW Steel in a conference call today said that it had cut utilisation at its
10mn tpa Vijayanagar steel plant to 30%. This was due to an acute
shortage of iron ore in Karnataka and delays in supplies of iron ore
procured through the Supreme Court appointed e-auction process on 14th
Sept. For context, on July 29 the Supreme Court of India had ordered the
suspension of all mining activity in the Bellary district of Karnataka after a
series of illegal mining allegations surfaced. A week later, the Supreme
Court passed an order allowing the state-run NMDC to operate its mines
for production of iron ore in the state. The Supreme Court allowed the
release of iron ore inventories lying idle at mine heads through an eauction system, being facilitated by the state owned MSTC. In the first such
auction held on 14th Sept, a portion of iron-ore sold was priced very high
finding no takers. Higher grade ore, used by the sponge iron industry, has
been priced at Rs. 3,700 a tonne. JSW Steel had secured about 100 kt of the
high grade ore, but stated that the ore bought on September 14 is only
being received now. This delay is caused by administrative bottlenecks in
securing transportation permits and a sub-optimal pace of paperwork.
Analysis
The company expects the process to be streamlined in another 10 days.
However, the lack of iron ore availability has led to a curtailed production
rate. For the past 2 months, the company was operating at about 70%
utilisation rate, which has now been scaled down to 30% utilisation. The
company clarified that they have not shut any furnaces, but are operating
all furnaces at a lower rate, so that utilisation may be ramped up quickly
when iron ore supplies normalize. The company is hopeful that the
administrative processes will be smoothened in the next few days, when
the second round of auctioning is expected on Sept. 29th.
Implications
Pending further clarity on iron ore availability and timelines of mining
suspension, we put our estimates and TP under review.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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