The Sajjan Jindal controlled JVSL is planning to pick up equity coal in an Australian coal mine, to tide over the raw material shortage that threatens to cripple the steel industry.
"The group is currently evaluating the mine and will spend roughly $20 million for the acquisition," Jisco managing director Sajjan Jindal said.
About 2 million tonnes per annum of JVSL's expected demand of 4 million tonnes will be sourced from the mine, relieving pressures on the supply side. The deal is expected to be concluded in about six months, he said.
JVSL will pick up equity as part of an international consortium that currently operates the mine for a 30 to 50 year term, Mr Jindal said. Prices of raw materials like coking coal, metcoke, scrap or sponge iron and iron ore have sky-rocketed over the last two months crossing 20-year highs.
Acquiring coal mines was one way of taking care of volatility problems, Mr Jindal said.
Another strategic move is to enter into long term contracts with shippers. The company is planning to sign a 20 year shipping contract with shippers to ensure that freight rates were not beyond control. Spot freight rates have spiralled from $10 a tonne to $35 levels in the past six months, he said "The plan is to form an SPV (special purpose vehicle) for about six vessels and take a 15-20% stake in the venture, Mr Jindal said..
Commenting on the government move to regulate steel prices, Mr Jindal said the industry has agreed to freeze prices till June. There is little that the government can do to help ease the raw material sourcing problem, but it can canalise iron ore exports.
"Iron ore of over 60% iron content should not be allowed to be exported," he said.
The higher grades should be reserved for India .
Mr Jindal also said the financial institutions should review their decision to limit exposure to the steel industry.
Companies which are pre-paying their debt should be allowed to expand, he said.
New steel makers like Jindals, as well as older companies like SAIL and RINL are facing severe pressure from rising input costs, industry analysts say. While SAIL is self sufficient in iron ore, RINL may have to shell out about Rs 750 crore per annum on increased coal and ore prices.
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