15, Aug 2011
JSW Steel’s cost of production has gone up by around Rs 1,000-1,500 per tonne as the company has to transport iron ore from Orissa, Chattisgarh and other locations due to suspension of mining and transportation of iron ore by the Supreme Court in Bellary district of Karnataka. The company plans to pass the increase in cost to the consumers.
“The cost escalation is mainly because our transportation costs have gone up as we have to bring iron ore from Orissa and Chattisgarh. Our production cost has gone up by around Rs 1,000-1,500 per tonne because of transportation cost,” a senior JSW official told Financial Chronicle on condition of anonymity.
The official said, although the company has managed to secure iron ore from government-owned NMDC but that could support production for the next three to four months only.
“We hope the Supreme Court gives some relaxation by then otherwise it will be difficult for the company,” said the official.
Following the Supreme Court order on August 5, which permitted NMDC to mine up to 1 million tonnes of iron ore per month, JSW restored its production to 80 per cent of installed capacity after it had cut production by around 35 per cent due to suspension of mining. The company reported crude steel production of 5.99 lakh tonnes in the month of July, a growth of 15 per cent compared to the corresponding month previous year.
However, industry experts think it will be difficult for the company to pass on the rise in production cost to consumers given the current scenario as demand has slowed down both in the domestic market and the overseas market.
Sanjay Jain, an analyst at Motilal Oswal Securities, said, “The company may be able to pass on 50 per cent of the cost but not the entire rise in production costs as demand has slowdown by 1-2 per cent compared to the corresponding period a year ago.”
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