As its greenfield unit at Kalingangar ramps up operations to reach its rated capacity of three million tonnes, Tata Steel is looking at multiple options to secure uninterrupted iron ore supplies.
Recently, Tata Steel announced its hot metal production at Kalinganagar crossed the two million tonne mark. In the first phase, the steel company is aiming to reach production of three million tonne per annum (mtpa).
Besides sourcing ore from its captive mines, Tata Steel has been buying iron ore from the merchant miners. It has participated on and off at the electronic auctions of iron ore conducted by the state owned Odisha Mining Corporation (OMC). Despite possessing its own captive mines in Odisha, Tata Steel was constrained to buy ore from external sources to meet the expanding requirement of the Kalinganagar unit. Most of the iron ore raised by Tata Steel in Odisha was catering to the requirement of its flagship operations at Jamshedpur.
Now, Tata Steel is examining the feasibility of clinching a long-term pact with OMC to secure iron ore supplies. On a trial basis, the steel maker has signed an agreement with OMC valid for one year.
"Initially, we will be sourcing 0.2 million tonne of iron ore every year on long term linkage from OMC. We have preferred to buy ore from OMC's Daitari mines in the vicinity of our Kalinganagar facility. To start with, we have an agreement for one year. We may go for an extension depending on quality and pricing of iron ore from OMC and also logistics issues", said a Tata Steel source.
Depending on their requirement, many steel industries in Odisha were sourcing iron ore from OMC via the long-term linkage mode. OMC counts Jindal Steel & Power Ltd (JSPL), Essar Steel, Visa Steel, Neelachal Ispat Nigam Ltd (NINL) and Bhushan Steel Ltd as its key customers of long-term linkage.
For Tata Steel, seeking iron ore from OMC is fraught with risk given the high cost of the raw material. This is more so at a time when Tata Steel is positioning Kalinganagar to be the lower cost steel producer than Jamshedpur given the greenfield steel unit's proximate location to the Paradip port.
Steel producers drawing iron ore from OMC through long-term linkage have been complaining about its stubbornly high pricing. They alleged the price determination for long-term linkage customers is based on the discovered price through e-auctions by OMC. They have alleged that the discovered price at auctions is unsustainably high and it needs to be eased for long-term linkage customers.
At the latest round of e-auctions conducted by OMC on February 3, prices of iron ore lumps were in the band of Rs 2000-2200 per tonne. Iron ore fines prices varied from Rs 1,400-Rs 1,600 a tonne.
The Tata Steel official, however said, the price differential between its captive production and buying iron ore from OMC would not be significant. "Today, the cost of captive iron ore production is almost comparable to the price you pay to the external suppliers after the inclusion of additional levies in the form or District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET). Also, our preference to buy iron ore from the nearby Daitari mines will work out the cost in our favour", said he.