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Business News/ Companies / JSW Steel may shut Karnataka plant if ore supply did not improve
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JSW Steel may shut Karnataka plant if ore supply did not improve

JSW Steel may shut Karnataka plant if ore supply did not improve

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New Delhi: JSW Steel, in which Japan’s JFE Holdings owns 14.8%, may have to shut its key plant in Karnataka if iron ore supplies did not improve, missing its output forecast for FY12, a top executive said on Tuesday.

India’s No. 3 steelmaker by capacity has cut output at the Vijaynagar plant in Karnataka to 30% of its capacity from Saturday as, it said, state-run NMDC is not supplying iron ore as directed by the Supreme Court.

The Vijaynagar plant accounts for 10 million tonnes of JSW Steel’s total capacity of 14.3 million tonnes. The company had forecast an output of 8.75 million tonnes for the current fiscal year.

“We may shut entirely. There is quite good possibility of that if situation doesn’t improve," vice-chairman Sajjan Jindal told reporters.

At 03.22 pm, JSW Steel shares were down 1.2% at Rs610.90 in a Mumbai market that was up 2.8%. Earlier in the day, the shares, valued at $2.8 billion, were up 2.3%. The steelmaker has lost almost half its market value this year.

In August, the Supreme Court, after putting an interim ban on iron ore mining in Bellary district of Karnataka due to illegalities, had allowed NMDC to mine the ore and provide 1 million tonnes of the ore every month to steel producers in the state.

NMDC has not fulfilled the Supreme Court’s directive to supply 1 million tonnes per month even after 50 days, said JSW Steel on Monday.

“We don’t have any inventory. We operate on a day to day basis," Jindal said, adding that the company wasn’t getting any ore from Karnataka and was adding to its cost by transporting it from other states.

Mumbai-based Kotak Securities, which has a ‘sell’ rating on JSW Steel with a target price of Rs660, warned of further earnings downgrade if iron ore supply problem persisted.

According to Thomson Reuters data, of the 37 analysts covering JSW Steel, nine have “sell" or “underperform" rating, seven have “hold" and as many as 21 have rated the stock as “buy" or “strong buy".

Analysts, who said that JSW’s production cut is sharper-than-expected, are waiting for e-auction of iron ore scheduled on 29 September that could probably help the company improve supplies.

The company is estimated to clock revenue of Rs32,000 crore and a net profit of Rs1,800 crore, according to Thomson Reuters.

In 2010-11, it posted a consolidated net profit of Rs1,750 crore on net sales of Rs23,900 crore.

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Published: 27 Sep 2011, 03:47 PM IST
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