Iron Ore Mining Cap in Karnataka Expected to be Increased Soon -JSW Steel

JSW Steel - India's largest steel producing company has announced the Q2FY18 results yesterday i.e 31 Oct'17.The company officials have a positive outlook with respect to domestic demand along with sufficient water and iron ore availability in H2 FY18. Below are the highlights of the investor conference call

1.Company's crude steel production fell slightly on yearly basis-JSW's crude steel production increased marginally by 1% to 3.94 MnT in Q2FY18 against 3.91 MnT in Q1FY18.However on yearly basis the same declined slightly by 1% to 3.98 MnT in similar quarter of previous year. Reasons for fall in production were less iron ore avaialbility in Karnataka e-auction, water shortage and monsoons.

2. Steel production shortfall to be made up in H2 FY18 - JSW Steel keeps its steel production guidance unchanged at 16.5 MnT and sales guidance at 15.8 MnT. The company will be able to make up the shortfall in production in upcoming quarters.

3 .JSW's recorded the highest ever sales performance in this quarter-Company's sales performance went up significantly by 12% on Q2FY17 to 3.92 MnT which was at 3.51 MnT in previous quarter.This was the highest ever sales performance of company in this quarter.On yearly basis sales figures saw the growth of 2% against 3.84 MnT in Q2FY17.

4.Company's EBITDA went up by 9% on yearly basis-JSW Steel's operating EBITDA showed the growth of 9% Y-o-Y basis to INR 2927 Cr in Q2FY18 against INR 2692 Cr in Q2FY17.In H1FY18 the same decline by 11% to INR 5125 Cr against INR 5778 Cr in H1FY17.

5.JSW coated steel product sales went up by 27% in Y-o-Y basis-Company coated steel sales shooted up by 27% on yearly basis to 0.56 MnT in Q2FY18 as compared to 0.44MnT in similar quarter of previous year..Production of coated steel also went up by 4% to 0.43 MnT in Q2FY18 against 0.45 MnT in Q2FY17.

6 Expect Favourable decision in Increasing in iron ore mining cap . The hearings for the case on raising iron ore mining cap in Karnataka have been made and the final decision is reserved at Supreme Court . We expect favorable outcome. Once SC delivers judgment, within next 2 months we will begin iron ore mining at 2 mines and within 5 months in balance 3 mines that we won through block auctions. Following this ramp up at our Vijayanagar plant is scheduled to take place from 12-16 MnT pa. Also the case for capacity enhancement of A & B mines in Karnataka pipeline. All these factors will add to iron ore supply in state will increase resulting in pressurizing prices.

Currently JSW Steel is paying a premium of INR 1,600/MT. NMDC prices in Karnataka are fetching a premium of INR 600 over NMDC Chhattisgarh. And also NMDC CG prices are at a premium of INR 1000 over Odisha iron ore prices. After JSW Steel starts captive iron ore production from its mines, they will have to pay premium on the IBM average price which may further reduce their cost of production.

7 Cash Flows Coming in from refund of FDF (Forest development fee)-With announcement of refund of FDF which was being levied at the rate of 12.5%. This has added to company's cash flows.

8.Rising imports of coated steel from China and Vietnam harmful to the domestic industry-.In Q2 FY18 India imported around 3 MnT steel. Out of which major share was of coated steel coming primarily from China & Vietnam.Despite govt imposed Anti dumping duty in the levels of USD 822/MT, landed PPGI from China & Vietnam is still cheaper by 15-16% than domestic prices, thus Anti dumping duty is inoperative.Surge in imports of coated steel from the above mentioned countries have put domestic coated steel prices under pressure.

9.Optimistic Outlook in H2FY18-Steel demand is expected to improve further with government focus on infrastructure,building up like roads,water and gas pipelines,solar energy projects,etc.Global steel prices increased in Q2FY18 however domestic steel prices remained flat.