By D. Roy and C. Yang/Bloomberg
Mumbai/Hong Kong: Jindal Steel & Power Ltd, part of India’s $4 billion O.P. Jindal Group, plans to buy coal and iron-ore mines in Indonesia and Australia to secure supplies of the main steelmaking raw materials.
The company, which is in talks for a $2.3 billion iron-ore and steel venture in Bolivia, expects to sign an agreement by the end of the month with the Bolivian government, finance director Sushil Maroo said in an interview from New Delhi.
Prices of iron ore, the main steelmaking ingredient, have almost tripled in the past five years due to demand from China, the world’s biggest steel producer. Prices of coking coal have declined 13% in 2005-06, after more than doubling in the previous year.
“Securing iron ore supplies will help curtail costs,” said Sanjay Makhija, vice president at Fortune Financial Services Ltd. “With China growth story remaining intact, it’s unlikely prices of iron ore will fall.”
Steelmakers may keep paying record iron ore prices until 2013 because Cia Vale do Rio Doce and rival mining companies can’t meet surging demand from China, Credit Suisse Group said. Iron ore prices may rise 10% next year and 3.2% in 2009, analysts Roger Downey and Ivan Fadel said in a 13 April report.
In August, Jindal Steel won the rights to explore half of Bolivia’s El Mutun deposit, or 20 billion tonnes, after three years of negotiations. El Mutun, based near Bolivia’s southeastern border with Brazil and Paraguay probably holds 40 billion tonnes of the steelmaking material, thrice India’s recoverable reserves.
Jindal plans to set up a 1.7 million metric tonne-a-year steel plant and a 10 million tonne pellet plant in Bolivia.
“We plan to sell our products mainly to countries in Europe and America,” Maroo said. The company will export almost 95% of its total production, he said.
The company last month completed negotiations for natural gas supplies for its Bolivian plant.
Bolivia’s natural gas reserves are the second biggest in South America after Venezuela and its 9 million inhabitants are the region’s poorest, with gross national income per capita of $960, compared with Argentina’s $3,580 and Brazil’s $3,000, according to World Bank figures for 2004.
Jindal Steel’s shares, which have gained 30% in the past year, fell 0.5% to Rs2,548.3 at close of trade on the Bombay Stock Exchange.
—With reporting by Anand Menon in Singapore