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NMDC, the country’s largest iron-ore miner, has proposed to step-in and act as a stockist-cum-distrbutor for steel made by its recently carved out company, NMDC Steel Ltd (NSL). If allowed, NMDC’s financial exposure in the venture will be in the range of ₹240–300 crore “at any given point of time”.
The move comes in the absence of clarity over disinvestment of the steel company – NMDC Steel, its lack of financial muscle to carry out high capex activities by themselves or set up downstream facilities, that include distribution channel, stockyards, etc. The steel unit has a relatively high debt exposure.
Incidentally, NSL did not develop downstream infra due to “extreme paucity of funds” and uncertainty over future ownership, since the company has been on the Centre’s disinvestment radar.
Proposal to Ministry
In a letter to the Steel Ministry, the NMDC top-brass has mentioned that this is a related party transaction and needs to be cleared by the Audit Committee, after a go ahead from the Ministry.
Under the model, proposed to be piloted in Hyderabad and Visakhapatnam, for South Indian markets where the steel company will have logistic and access advantage, NMDC will buy the hot rolled coils at a pre-determined price (set by a committee), enter into MoUs with buyers for sell and also appoint handling contractors. Several approvals are required including licenses.
The proposal (copy reviewed by businessline) mentioned “.....NSL neither has financial resources to set up its own stock yards and the distribution system, nor can it contract long term arrangements with other stockists or distributors since it is on the anvil of disinvestment.”
“To address this situation, a proposal has been conceptualised whereby NMDC (the iron ore miner) shall set up an arrangement as ‘stockist cum distributor’ of NSL’s (the steel company) ‘made to stock’ production,” the letter further added.
A ‘made to stock’ production involves selling on a cash and carry basis without any credit facility. It also means, producing as per order.
The option to use SAIL as a stockist-cum-marketing agent has not been fruitful because of the company quoting a high commission of ₹3,000 per tonne, while similar discussions with RINL and a private player have not been fruitful either.
Production at NSL
The 3 million tonnes per annum (mtpa) steel plant, at Nagarnar, in the Bastar region of Chhasttisgarh, was commissioned in August 2023. It was designed towards making speciality steel and flat products.
Post stabilisation, the plant had a production of around 4.31 lakh tonnes of hot rolled coil (till mid-March), while sale was to the tune of 3.51 lakh tonne. Stock available with the company was 1.16 lakh tonnes.
Monthly production stands at around 90,000 tonnes. The unit is expected to achieve break-even at 5,000 tonnes of hot rolled coil making per day.
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