VSP spending 70 per cent of its production cost on raw material

: Rashtriya Ispat Nigam Limited, the corporate entity of Visakhapatnam Steel Plant, is expected to get a booster dose for achieving raw material security with the in-principle decision of Andhra Pradesh and Rajasthan governments respectively to allot captive mines in Telangana and Bhilwara.

VSP, the only major steel producer without any captive mines, has been spending 70 per cent of its production cost on raw material. Stung by risk of volatility for want of raw material security for so many decades, rising prices of key inputs and market sluggishness, the progress in getting iron ore mines in the two States will make RINL management breathe easy to some extent.

Its hopes of laying hand on 220 million tonne of iron ore reserve of Orissa Mineral Development Company (OMDC) were dashed with the Odisha government refusing to renew mining leases after it got embroiled in a controversy over certain allotments. RINL picked up 51 per cent equity in Eastern Investments Ltd (EIL), which is the holding company of OMDC and Bisra Stone Lime Company (BSLC).

Lady luck did not smile even after it was allotted two coal blocks at Mahal and Tenughat-Jhirki in Jharkhand when RINL found them unviable for mining and surrendered them, seeking alternate blocks a year ago. As of now, it is mostly sourcing coal through import route and iron ore from NMDC’s Bailadilla mines in Chattisgarh.

Rising cost

Rising input cost and the deteriorating market conditions had a tell-tale effect on its turnover during just-concluded fiscal.

It finished 2012-13 with a turnover of Rs.13,650 crore as against previous year’s Rs.14,426 crore notwithstanding the initial efforts to clock at least Rs.15,000 crore. A variety of factors have led to escalation in the project cost of ongoing 6.3 million tonne expansion from Rs.8,600 crore to Rs.12,500 crore.

Captive mines

“The allotment of captive mines in AP will help us achieve 20 million tonne capacity – the largest steel plant at single location,” was the reaction of RINL Chairman-cum-Managing Director A.P. Choudhary, to the news on clearance of file by the Chief Minister.

Sources said RINL has plans to invest Rs.1200 crore on 10 million tonne pelletisation plant at Bhilwara.

For developing mines at Bayyaram and two other blocks, it will invest at least Rs.1,000 crore.

  • Currently, VSP is mostly sourcing coal through import route

  • It is getting iron ore from NMDC’s Bailadilla mines in Chattisgarh