Orissa government’s recent notification (dated 05.12.12) on channelising sale of iron ore to the standalone mineral based industries of the state will impact iron ore lumps supply from Sarda mines for JSPL’s existing steel production. This in turn will impact its external pellet sales as higher proportion of pellets will be consumed captively to maintain the steel production.
Orissa Government Notification: Orissa government issued a notification dated December 5, 2012 asking iron ore miners to sell atleast 50% of its output (both lumps and fines individually) within the state at prevailing market prices until further orders. Iron ore mined for captive purposes is kept outside the purview of the said notification. Orissa government has invoked the powers vested under clause (m) of sub rule (1) of rule 27 of the Mineral Concession Rules, 1960 and Article 39(b) and (c) of the Constitution of India while issuing the said notification. The said notification will come into effect from December 2012 and will have to be adhered on a monthly basis.
Impact on JSPL: JSPL’s profitability will be impacted on account of lower pellet sales. However this can be partly offset by increasing production from its Tensa mine (FY12 production: 2.14mn tonnes, EC limit: 3.11mn tonnes) and also optimally utilizing its pellet capacity. While we have not assumed any production increase from Tensa mine, we have increased the pellet capacity utilisations to 97.5% from 95% earlier. We reduce our pellet sales assumption for FY13 and FY14 by 20% and 47% to 1.6mn tonnes and 1.1mn tonnes respectively. This will impact our standalone operating profit estimates by 4.2% (Rs 1.8bn impact) and 6.1% (Rs 3.6bn impact) for FY13 and FY14 respectively.
Source: Phillip Capital
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