In an effort to plug gaps in raw material sourcing, state-owned steel producer Rashtriya Ispat Nigam Ltd. (RINL) has floated an expression of interest (EOI) for empanelment of iron ore pellets manufacturers for long-term supply of pellets for the 7.3 mn t/per annum Visakhapatnam Steel Plant (VSP).
In the absence of captive iron ore mines, the disinvestment-bound company is heavily dependent on PSU miner NMDC for sourcing of iron ore and, therefore, long-term contracts are critical for ensuring raw materials security. Raw material requirements will dictate the specific volumes to be sourced from the empanelled pellet producers, SteelMint has come to learn from reliable sources.
The technical specifications mention that the “absolute” requirement for ferrous content of pellets is 92.5%, while the desired requirement is Fe64.5%. Manufacturers falling a notch or two below the desired requirement can also apply. Pellet manufacturers must ensure a maximum alumina content of 3% and phosphorous content of 0.1%. While undersized material (below 5 mm) should be maximum 5%, the tumbler index (+6.3 mm) should be minimum 90%.
The ongoing stir pertaining to disinvestment of VSP has revealed that RINL has been unable to expand production capacity thus far due to absence of captive mines unlike other PSU steel-makers. It has also been pointed out that some private steel-makers have captive iron ore mines, while RINL has to rely on purchase of iron ore at market prices that remain elevated due to domestic supply shortage.
Absence of captive iron ore mines mean that the percentage cost share of raw materials in RINL’s hot metal production is far higher compared to steel-makers who operate captive mines. The significance of the latest move is that high-quality feedstock sourcing contracts secured at reasonable prices could boost RINL’s physical performance and EBITDA margins.
According to SteelMint data, RINL’s iron ore sourcing declined to 7.57 mn t in FY20 compared to 9.09 mn t in FY19, as crude steel production slipped to 4.75 mn t in FY20 against 5.23 mn t in the preceding fiscal. As per latest data, the steel producer sourced 4.39 mn t of iron ore (excluding pellets) till Jan’21, with volumes gradually increasing after successive restart of two blast furnaces following unlock measures after Covid-19 .
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