Jindal Stainless Ltd (JSL) will invest approximately ₹1,300 crore ($157 million) towards setting up a nickel pig iron smelter (with two rotary klin electric furnace) in Indonesia.

The facility is aimed at securing supply of nickel, a key ingredient in the production of stainless steel; and will come up in partnership with Indonesia-based New Yaking Pte Ltd. JSL will have a 49 per cent stake in the JV.

Investments will be spread over a two-year period — ₹750 crore-odd in first year and ₹550 crore in the second year — and will be funded mostly through the internal accruals of the company.

Meeting needs

According to Abhyudyay Jindal, Managing Director, Jindal Stainless, the deal includes construction and operation of a nickel pig iron facility in Indonesia’s Halmahera Islands. The plant will be commissioned within two years and will have an annual capacity of up to 200,000 tonnes of nickel pig iron and a nickel content of 14 per cent.

For the company’s annual stainless steel production — which is being ramped up to 3 million tonnes (mt) April onwards from the existing 2 mt — the total requirement of nickel is 125,000 tonnes, of which 15-16 per cent is sourced through nickel pig iron. Following this partnership and commissioning of facilities, the company expects to fully meet its nickel pig iron needs.

Nearly 50 per cent of the company’s raw material cost is nickel. And it has been relying on open market sourcing for the key offering. JSL also meets bulk of its nickel requirement through stainless steel scrap and ferro nickel. India continues to be deficient in nickel and most of its requirements are met through imports from Indonesia.

No projections

“Nickel is a volatile commodity and we cannot give any projection on topline and bottomline at this stage. However, compared to similar operational businesses or acquisition models, we have bench-marked an IRR (internal rate of returns) of about 25 per cent; which means that we expect a payback in four years,” Jindal told businessline.

Post the facilities coming up, JSL will source nickel pig iron from its Indonesian JV “at market price”. “We will see how the JV works out and take future decisions on expanding smelter capacities,” he said.