Essar Steel Increases its Iron Ore Sourcing by 13% Y-o-Y in CY17

Essar Steel - an integrated steelmaker with steelmaking capacity of 10 MnT per annum has increased its iron ore sourcing by 12.8% Y-o-Y basis from 9.82 MnT in CY16 to 11.08 MnT in CY17, thus indicating company's efforts to scale up its steel production. Company's crude steel production has increased by 15% from 5.15 MnT in CY16 to 5.95 MnT in CY17.

Increase in Iron ore sourcing from NMDC in CY17.

Out of the total domestic iron ore sourcing in CY17, about 65% (7.10 MnT) was sourced from NMDC, Chhattisgarh and remaining 35% (3.98 MnT) was availed from mines in Odisha. If we analyse the company's iron ore sourcing in previous year of CY16, the percentage contribution from NMDC was 59% and from mines in Odisha was 41%.

Imports down by 45% in CY17

In CY17, the company seems to reduce its dependency on imports to meet iron ore requirement as its iron ore and pellets import declined from 1.1 MnT in CY16 to 0.6 MnT in CY17. The key reason being procurement from domestic merchant miners was more reasonable than importing from foreign markets.

Essar Steel's pellet exports increased in CY17

Essar Steel's pellet exports increased by 40% Y-o-Y basis from 0.89 MnT in CY16 to 1.25 MnT in CY17. The company exported pellets to two countries mainly China and Japan. While in CY16, exports to China stood at 0.73 MnT, in CY17 it increased to 1.18 MnT. Company's pellet exports to Japan reduced from 0.15 MnT in CY16 to 0.07 MnT in CY17.

The challenges ahead for Essar Steel

With the start of CY18, both NMDC and miners in Odisha have increased their iron ore prices by almost INR 500/MT. This has worried the domestic steel producers including Essar Steel that do not own captive mines and is dependent on merchant miners to meet its iron ore requirement. With the surge in other key raw material cost i.e. coal, it will be inevitable for the company to increase its steel product prices in the coming months.

On 15 Jan'18 the company got 'Consent to establish' from the SPCB (State Pollution Control Board) for its Ghoraburhani-Sagasahi iron ore block which has 100 MnT of iron ore deposits. The approval is to mine iron ore of capacity 7.16 MnT per annum, crushing and screening plant and iron ore beneficiation plant of 6.7 MnT. The order is valid for five years during which Essar Steel is required to commence its mining activities.

However, the main cause of concern for the company is that it cannot start mining operations in the allocated iron ore block as it is admitted under NCLT (National Company Law Tribunal) and is facing insolvency proceedings.

Global prices of iron ore have also increased with the start of 2018. Thus, with hiked global and domestic iron ore prices, the company will benefit only if it get access to its captive mines (Ghoraburhani-Sagasahi iron ore block) after the resolution process is completed.

* Estimated Figure
Quantity in MnT
Source: SteelMint Stats, JPC