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Struck by delays in getting environmental clearance for its captive iron ore asset vis-à-vis limited availability of ore in the open market, Electrosteel Steels Ltd (ESL) is pinning hopes on an anticipated upswing in steel prices to ensure profitability of its upcoming 2.5 million tonne integrated (long products) steel plant at Bokaro in Jharkhand, during the next fiscal.
The Rs 9,500 crore facility is expected to be on stream in phases between this December and June 2012 – approximately 6-8 months behind the original schedule. The project has received debt finance from a consortium led by SBI. Repayment will start from the first quarter of 2012-13.
Incidentally, ESL claims to be only integrated facility to come up in the region since 1962. The plant is also reportedly the first ever major user of steel technology from China.
According to company sources, the technology acquired from Laiwu Steel Group proved to be nearly 30 per cent cheaper than those offered by European majors. Laiwu has nearly 15 million tonne steel making capacity in China and is also entrusted with the job of stabilising the ESL facility in six months' time.
Open market buys
Company sources admit that with its captive iron ore mine at Kodolibad near Barajamda in Jharkhand still awaiting clearance from the Union Ministry of Environment and Forests, ESL is dependent on open market purchases at least the next one to one-and-a-half year.
In addition to price volatility in the open market, what makes ESL's job difficult is the limited availability of ore – in the days after Karnataka's crackdown on illegal mining – leading to low capacity utilisation by major producers like JSW.
“It's a difficult situation for the industry and there was no way we could foresee it. It is a challenge to run the (ESL) plant at full capacity through open purchase of ore. However, we are expecting the product prices to move up — due to lower domestic production – and ensure profits in case of lower capacity utilisation than envisaged,” a source told Business Line .
Electrosteel had its IPO in September 2010, which was oversubscribed eight-times. Shares of the company of Rs 10 each closed at a new low of Rs 5.03 – down by 4.37 per cent — a share at BSE on Friday.
Long product prices dropped marginally (Rs 500-1,000 a tonne) since October. Mr H.M. Nerurkar, Managing Director, Tata Steel Ltd recently projected the domestic prices to remain firm in the face of anticipated drop in imports due to a fall in rupee against dollar.
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