JSW Steel moves up after proposing slurry pipe line

JSW Steel rose 3.77% to Rs 205 at 14:50 IST on BSE after the company said it proposed slurry pipe line to transport iron ore and coal in Karnataka.

The announcement was made during market hours today, 29 June 2017.

Meanwhile, the S&P BSE Sensex was up 138.76 points, or 0.46% at 30,977.25.

On the BSE, 4.45 lakh shares were traded on the counter so far as against the average daily volumes of 6.91 lakh shares in the past one quarter. The stock had hit a high of Rs 205.75 and a low of Rs 198.80 so far during the day. The stock had hit a record high of Rs 209.35 on 17 May 2017 and a 52-week low of Rs 138 on 28 June 2016.

The stock had underperformed the market over the past one month till 28 June 2017, falling 0.8% compared with 0.62% fall in the Sensex. The scrip had, however, outperformed the market in past one quarter, gaining 8.78% as against Sensex's 4.84% gains. The scrip, had also outperformed the market in past one year, gaining 38.41% as against Sensex's 16.25% gains.

The large-cap company has equity capital of Rs 241.72 crore. Face value per share is Rs 1.

Transportation of iron ore through slurry pipeline is an environmentally friendly initiative and globally this shift towards pipeline transportation is evident. Accordingly, the proposed slurry pipeline not only contribute to alternate sourcing of iron ore from outside Karnataka at competitive price but is also highly environment friendly with no pollution.

As the availability of iron ore at a fair price within Karnataka is of paramount importance for long term sustainability of the company and environment friendly transportation of iron ore, the board of directors has given an approval to set up a slurry pipeline to transport iron ore from coastal Karnataka to the Vijayanagar works.

This slurry pipeline can be set up within 24 months at an estimated cost of Rs 2100 crore. This will facilitate transporting iron ore through slurry pipeline at a very competitive 15% cost of alternate means of transport.

This strategic project will enable the company to source almost 50% of the current requirement of iron ore at Vijayanagar works from outside Karnataka either from imports or from Odisha/eastern sector at prices lower than the prevailing prices in Karnataka.

The only way to check this arbitrary pricing of iron ore in Karnataka is to increase the supplies from alternate sources. JSW Steel will work towards establishing the slurry pipeline in a time bound manner. Simultaneously, the company is also exploring the feasibility to set up slurry pipelines for transporting coal from coastal Karnataka to Vijayanagar works, JSW Steel said.

JSW Steel said that it has been operating its 12 million tonnes per annum (MTPA) integrated steel plant at Vijayanagar works in Karnataka. The plant has been set up with substantial investments relying upon consistent supply of iron ore at a fair price.

The Supreme Court of India, in the backdrop of measures undertaken to curb illegal mining in this region, imposed several restrictions which inter-alia includes a cap of mining 30 MTPA of iron ore per annum within Karnataka. Even after a lapse of over 4 years, the current rate of iron ore production in Karnataka is still around 27 MTPA, far lower than the demand by the user industries.

The objective of these restrictions imposed by the Supreme Court is to curb illegal mining, facilitate sale of iron ore in a transparent manner and to make available adequate amount of iron ore to the user industry. The apex court has also given a special dispensation to the state owned mining entities namely National Mining Development Corporation and Mysore Minerals to produce in excess of their statutorily permitted quantities within the overall ceiling of 30 MTPA.

As the demand for iron ore is far in excess of supply, the mining companies have started charging differential price for the iron ore produced and sold in Karnataka relative to the prices prevailing in Odisha/Chhattisgarh, contrary to the intent of making available legally mined ore at competitive price.

Taking advantage of the scarcity of iron ore in Karnataka and inability of the user industry to source iron ore from outside Karnataka due to prohibitive freight cost, the mining companies are squeezing the iron and steel industry which is already under severe margin pressure.

JSW Steel's consolidated net profit spurted 235.4% to Rs 1008.58 crore on 57.1% increase in net sales to Rs 16287.30 crore in Q4 March 2017 over Q4 March 2016.

JSW Steel is the leading integrated steel company in India.

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