Steep iron ore, freight costs rattle steel makers in Odisha

When Naveen Jindal, chairman of Jindal Steel & Power Ltd (JSPL) called on the top executives of the Odisha bureaucracy last month, he was a visibly worried man. Jindal was vexed at the escalating prices of iron ore in the largest producing state. This rise was despite the sobering international prices of the ore. The JSPL chief also ventilated his grievances on the never easing transportation issues in Odisha. Logistics costs in Odisha have outstripped other mineral bearing states. Despite a series of notifications by the state administration, implementation on the ground was lacking. Transporters who have formed a cartel often used their pelf and connections to get away with their arbitrary pricing for carrying mineral freight.

Transporters have been hiking prices from time to time. Iron ore prices are also being jacked up by the merchant miners riding on an artificial shortage of ore. The combined effect of the two factors has a telling impact on operations of steelmakers in Odisha. The state accounts for around 20 percent of all crude steel produced in the country. What’s more, it’s also the largest stainless steel producer in India. Odisha is home to a cluster of steels units- Tata Steel, Jindal Stainless Ltd, Bhushan Steel, JSPL, Mesco Steel et al. The Kalinga Nagar industrial complex houses a string of small to medium sized steel projects in addition to Tata Steel’s six million tonne greenfield plant. Endowed with ample iron ore & coal reserves and bolstered by the presence of ports and railway network, Odisha is best favored to offer a competitive ambiance in steel manufacturing. Even Tata Steel estimates that in the long run, its Kalinganagar plant would be more cost competitive compared to its flagship Jamshedpur operations, driven by a synergy of advantages.

.However, the competitive pricing of steel made in Odisha is questionable given the prevailing price and supply dynamics. The consistent increase in input prices has pushed up the cost of steel manufacturing. Hike in raw material costs has rattled the steel industries as prices of finished steel products were going downhill. Between April and July 2018, steel prices have sobered to Rs 39000 from Rs 41,000 per tonne. In the comparable period, prices of iron ore lumps have seen a spike of 10.58 percent, rising from Rs 4725 to Rs 5225 per tonne. Iron ore fines, too, have become dearer, rising 17 percent from Rs 2050 to Rs 2400 per tonne. Odisha is also one of the states which levy the highest royalty even on the lowest grade of fines. This has rendered raw material dearer, especially for beneficiation and pellet making- industries which use lower grade iron ore fines. Royalty on iron ore fines is charged at the same rate as that of lumps vide a state circular in September 2010. For instance, royalty on 62-65% Fe iron ore fines comes to Rs 583 per a tonne which is 96 percent higher than the statutory royalty of Rs 298 a tonne. The iron ore produced in Odisha is important since it is not only supplied within the state but also feeds the steel projects and pellet plants across the country.


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