JSW Steel Feb output suffers, firm blames e-auctions

In February, production of steel at JSW Steel fell 24 per cent to 610,000 tonnes, compared to 805,000 tonnes in January. However, compared to January 2011, the company logged a production growth of 13 per cent.

Production of flat steel grew a mere one per cent. However, long steel production doubled to 152,000 tonnes in February as against the same month last year. In February, the company posted total crude production of 610,000 tonnes, against 805,000 tonnes in January, signalling a sequential drop.

The company has blamed the drop in quality of iron ore sold in the e-auction in Bellary for the slow growth. Seshagiri Rao, joint managing director and group chief financial officer, said, “The crude steel production during February was severely impacted due to usage of inferior grades of iron ore.”

This doesn’t sound very good for the company, as in January it had said the balance ore from the stock piles for e-auction were expected to last only three to four months. With the falling quality of ore resulting in drop in production, the problem seems to have become starker. In January, JSW had said, “Continuing steel production will be a challenge in case iron ore mining ban continues in the state of Karnataka.”

The company said the 25 million tonnes of iron ore allowed by the Supreme Court to be sold through e-auction was approaching an end and the quality of the ore deteriorating. Rao said, “Certain iron ore in e-auctions contained high alumina, silica, manganese and low Fe (iron), which led to poor sinter quality, high slag formation and low productivity in the blast furnaces.”

The steel industry in Karnataka needs three million tonnes of iron ore a month to run at full capacity. However, in February, only 1.17 million tonnes of ore was e-auctioned. Rao said, “Even after paying higher prices in e-auctions, the availability of quality iron ore is a challenge, threatening the continuation of steel production efficiently.”

An analyst tracking the steel sector said, “Even though JSW Steel has managed to increase its production, the quality of ore is a concern. This has also increased the production cost, as efficiency of the blast furnaces and other equipment are under pressure.”

In the third quarter ended December 31, 2011, JSW Steel recorded steel production of 1.94 million tonnes, up 19 per cent over the same period last year. The capacity utilisation in December was 84 per cent, which has inched up slowly since then. Although the company refuses to specify the current capacity utilisation of the Bellary plant, analysts say it is well over 90 per cent.

Steelmakers in Bellary have been complaining about the procedural delays in getting the e-auctioned ore to their plants causing production cuts even after securing the ore. JSW said there has been a gradual improvement in the receipt of e-auction ore at the plant, which has helped the company raise production. By December 31, 2011, JSW Steel had received 52 per cent of the 7.10 million tonnes of ore it had bought from the e-auction.