OMC's input supply plan to benefit Bhushan Steel, JSL

Companies welcome move, but wary of market-linked ore rate

The proposal of Odisha Mining Corporation (OMC) to ink raw material supply pact with steel producers of the state is expected to benefit Bhushan and Jindal groups, especially Jindal Stainless Ltd (JSL) and Visa Steel, which will get iron ore and chromite supply assurance from the state-run miner for a period of five years.

The state cabinet on Monday approved the proposal of OMC, which was based on a ministerial committee report last year, to provide raw material linkage to local industries. As per the proposal, OMC will provide 50 per cent of iron ore and 70 per cent of chrome ore produced by it at market rates to companies who have signed MoUs with the state government and are currently in operation.

The state-run miner produces nearly two million tonne iron ore and close to 800,000 tonne chrome ore every year.

The conditions to get five-year raw material linkage from OMC will benefit both Bhushan Steel and Power Ltd and Bhushan Steel Ltd, Visa Steel which will be getting iron ore at market rate since their plants are already in operation. Similarly, the move is expected to benefit JSL for its stainless steel plant at Kalinganagar in the state. The companies welcomed the move, but said the term ‘market rate’ was a cause of concern.

“The whole idea to ink a supply pact was to get raw material at a reasonable price. If OMC has decided to supply ore at market rates, then we have to see whether it will support our profit margin given the current demand scenario for steel products,” said an official of a large steel maker. In the post cabinet meeting briefing on Monday, the state government stressed that the supply pact will be available only to MoU-signed companies, which do not have captive raw material resources and have completed plant construction.

Bhushan Power & Steel Ltd (BPSL) has invested more than Rs 25,000 crore in Odisha as of now. The company has built a 2.4 million tonne per annum (mtpa) steel mill and 248 Mw captive power plant (CPP) at Sambalpur.

Though the firm has been granted an iron ore mine lease by the state government, it will take at least two years to use ore from its captive mine. The company is currently sourcing iron ore from private miners. Another Bhushan Group firm- Bhushan Steel Ltd has invested around Rs 24,000 crore. The company’s 3 mtpa integrated steel plant is in operations at Meramundali near Dhenkanal.

The other major MoU signed steel players to have commenced operation are JSL. It is currently running a one million tonne stainless steel flat product plant at Kalinganagar. It is currently procuring chrome ore by participating in online auction conducted by OMC, which often result in stoking up of input prices, eating away the profit margin.

The company has sought chrome ore lease in Odisha for its Kalinganagr plant and was also trying to strike a deal with OMC for raw material supply.

Similarly, Visa Steel has operationalised a 0.55 mtpa steel plant and 75 Mw CPP at Kalinganagar. Jindal Steel and Power Ltd (JSPL), which has completed construction of its 2.5 million tonne integrated steel plant at Angul, is also vying for raw material linkages. Out of 49 steel players, who had signed MoUs with the state government, 30 have started production on a partial scale. A large chunk of investments have flown from small and medium firms with steel making capacity of below one mtpa. In total, these companies have achieved a combined steel output of 12.66 mtpa. The small steel players to have started operation are Adhunik Metaliks Ltd, Narbheram Power & Steel Ltd, SMC Power Generation Ltd, Maheswary Ispat and Aryan Ispat & Power Ltd to name a few. None of these firms are producing finished steel products.