Mumbai: After bidding aggressively for the Karnataka iron ore mines, the Sajjan Jindal-led JSW Steel is not keen on the forthcoming Odisha auctions as it is not willing to pay a premium given the demand slowdown for steel and an economy in tatters, sources said Thursday.
The bidding for Odisha iron ore mines will be conducted in two phases, with the first this month and the second in September, and eight mines are expected to auctioned in the August round.
When contacted, a JSW official declined to comment on its decision to skip the Odisha auctions but said it bid very aggressively for Karnataka iron ore mines at almost 100 per cent premium to source ore for its flagship 12 MTPA Vijayanagar plant which requires around 25 MPTA ores annually.
JSW Steel was declared the preferred bidder for three iron ore mines with an estimated resource of around 92.97MT in the Karnataka auctions held last month.
The official said for JSW, cost of logistics in Karnataka is much lower as the mines are located near the plant resulting in savings on transportation cost.
Currently, JSW Steel has an 18MTPA installed capacity and has a target to more than double this to 45MTPA over the next decade.
“No one will bid aggressively as a 25-30 per cent premium for merchant leases is a reasonable. Odisha has huge supply potential but there is not enough demand. Thus there is a potential risk to pay a huge premium,” the source told this agency.
Moreover, capital cost for developing iron ore mines in Odisha will be much higher compared to other states due to the National Environmental Engineering Research Institute’s mandate to set up a slurry pipeline/railway siding/conveyors in case of mines producing more than five million tonne per annum.
Almost all the Odisha mines have a production capacity of over five million tonne, which calls for not only huge capital investment but also execution risks apart from logistics constraints, the source explained.
Odisha produced around 120MT iron ore in FY19, or more than half the national production and as per NEERI, this can go up to over 180MT annually.
The expert also said there is a huge bottleneck in transporting iron ore from Odisha mines to end-use plants or ports due to restriction on transportation timing, non- availability of rakes, and the scarcity of railway sidings.
PTI
