JSW Steel has made the first couple of dispatch of iron ore from Odisha, following start of operations at two of its four newly-acquired mines earlier in the month.
The company dispatched a rake each from Nuagaon and Narayanposhi mines with approved capacities of 5.6 mnt pa and 6 mnt pa respectively. One rake of iron ore has been sent to its west coast plant of Dolvi while another was dispatched to its flagship 13 mnt pa Vijayanagar plant.
AMNS India has also started operations at their newly-acquired mines this month. None of the other mine owners have resumed operations yet, while previous leaseholders continue to sell ore stocks produced until 31 March. Suspension of production at these mines have lifted domestic prices in recent days.
JSW Steel won the most, four, mines in Odisha’s auction of 19 iron ore mines as leases of previous owners had expired on 31 March, 2020. The four mines have a total approved capacity of 30 mnt pa. Nuagaon mines has a merchant classification which will technically allow JSW Steel to sell ores in the open market. But the steel producer is unlikely to make such sales as it is keen to secure iron ore supplies for its own steelmaking operations. JSW has been India’s biggest iron ore importer over the past five years, as it sought to build up sufficient ore stocks of a good quality for its 18 mntpa steel capacity.
Like other bidders, JSW Steel bid at a high premium for the mines it acquired. It bid at a premium of 95.20%, 98.55%, 132% and 110% for Nuagaon, Narayanposhi, Ganua and Jajang mines respectively. The premium indicates the percentage of the monthly average sales price for a particular grade of iron ore, as published by the Indian Bureau of Mines (IBM), that miners will have to pay to the state government over the lease period. Mines will additionally pay royalty and make statutory contributions to the DMF and NMET.
The high price paid at these auctions has led to speculation on financial viability of operations. Large integrated mills such as AMNS, JSPL and JSW Steel would seek to pass on additional costs to steel buyers or even tolerate some ex-mine losses in the short-term given their deeper pockets. But merchant mines that have bid at hefty premium may struggle to earn profits and stay afloat.
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