JSW puts Vijayanagar plant expansion on hold

The company had plans of expanding its Vijaynagar capacity by 2 MT, with an investment of Rs 2,695 cr, proposed to be completed in 2014

The JSW Steel has put on hold the expansion plans of Karnataka’s Vijayanagar plant, which has 10 million tonnes (MT) capacity, due to the continued iron ore shortages. The company, headed by Sajjan Jindal, had plans to expand its Vijayanagar capacity by 2 million tonnes (MT), taking the total capacity to 12 MT per year. The Rs 2,695-crore expansion was proposed to be completed in 2013-14.

“We have put it on hold as far as the expansion from 10 MT to 12 MT is concerned (at Vijayanagar). We want this iron ore situation to improve before we do the expansion,” JSW Joint Managing Director and CFO Seshagiri Rao said.

To fund the expansion, the company had plans to take Rs 1,750 crore debt and meet rest of the investments, about Rs 945 crore, from its cash reserves. However, all of this has been put on hold, Rao said. “We have not really spent big money on it and have not placed the orders. So it is on hold,” he said.

When asked whether paucity of iron ore — the key steel making raw material— is the only reason for not going ahead with the expansion, Rao said, “yes”. JSW Steel, country’s biggest steel maker in the private sector, has been struggling to run the 10  MT Vijayanagar plant at its optimum capacity for more than one-and-a-half years due to shortages of iron ore.

The Supreme Court had a imposed a mining ban in Karnataka. Due to the shortages of iron ore, JSW has been running the plant at 80 per cent or lesser capacity and the current capacity utilisation is 75-77 per cent, Rao said, adding that the company will be able to meet its production guidance of 8.5 MT for the current fiscal despite the crisis.

During the first 11 months of the present fiscal, the company has produced about 7.80 MT of steel. The iron and steel industry in Karnataka has a production capacity of about 18 MT per year. For this, annual iron ore requirement has been pegged at about 30 MT.

Against the total iron ore requirement of 30 MT per year, only 15 MT is visible, Rao said. “Fifteen MT per annum iron ore is visible today, then there are some dumps, another 5-6 MT.

For that also, the (apex) court has to give clearance. If that comes in, then we will have at least some breathing space. Otherwise, next year will be difficult,” Rao said.

He added that JSW is hopeful of apex court providing some more relief to the miners in the state and the company is “eagerly waiting” for the hearing on the issue to complete.