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|Chalked Out Massive Expansion and Diversification Plans||Interview with Malay Chatterjee, CMD, KIOCL Limited|
With what objective was KIOCL set up?
KIOCL Limited, (formerly known as Kudremukh Iron Ore Company Limited) was established in the year 1976. In early 70s, Iran had an ambitious plan for its domestic steel industry and was looking for a reliable supplier of iron ore and thus, Kudremukh was identified. KIOCL was born out of a Memorandum of Understanding signed on 2.5.1974 between Govt. of Iran and India for implementation of the project for production and delivery of Iron Ore concentrate to National Iranian Steel Company. Due to political turmoil, Iran backed out from the project. The project was, however completed without cost and time overrun with funds provided by Govt. of India. It became a PSU fully owned by GOI. Further, to provide diversification to its products, 3.0 MTPA Pellet Plant was commissioned at Mangalore in 1987 which was subsequently upgraded to 3.5 MTPA capacity. Today, KIOCL’s products are choice of quality conscious customers and are ideal feed for hi-tech steel plants anywhere in the world and furnaces domestically.What is the exact roll of KIOCL in “Iron & Steel “Sector?
When it comes to infrastructure, steel has a definite grip and has been projected as a sunrise sector. The traditional sectors such as construction, housing, transportation and other sectors with hi-tech engineering such as power generation, petrochemicals, fertilizers all requires steel for which the demand is met with domestic iron ore or pellets.
With the present Govt. focusing on economic development, encouraging infrastructure projects in the form of roads, flyovers, Metro rail and port facilities would in turn encourage the domestic steel verticals to remain competitive. There is a growing confidence in steel as a reliable, cost and time efficient material.
The steel production capacity is projected to grow to 125.9 million tonnes by 2016-17 and hence utilization of pellets in the steel making will be very essential and would play a greater role in future steel making.
KIOCL limited, a merchant pellet manufacturer supplies pellets to steel manufacturing companies. Pellet, an intermediary product between iron ore and steel goes as a major raw material in increasing the productivity in steel plants and the role of KIOCL in enhancing the production capacity of steel making in the country will be significant.
How do you view the KIOCL significant progress since its Inception?
Since its inception, KIOCL has been facing many hurdles but continues to progress against all odds. Initially, Government of Iran, which came forward to finance Kudremukh project, pulled out mid way due to certain political developments in their country, however KIOCL survived with the support of GOI to complete the project in record time.How is overall scenario of Indian Iron & Steel Sector?
KIOCL was in red after Iran’s failure to lift the contracted quantity of Iron Ore concentrates. Though the production was in full swing, KIOCL had to suffer because there were no buyers due to poor market demand. However, KIOCL was able to overcome this initial setback and developed new market for its products. During 1987, KIOCL pioneered pellet production in India by putting up a pellet plant to supply the value added product which earned better margins. The year 1989-90 saw KIOCL wiping out all the accumulated losses and recording profit for the first time. The trend continued for over two decades. KIOCL was consistently registering profit and has been paying the dividend to Govt.
Next challenge faced by KIOCL was when its mine got closed in 2006. In order to keep its Pellet Plant running, KIOCL started sourcing iron ore fines from NMDC’s Doni mines in Karnataka and Baila & Bacheli mines from Chhattisgarh. KIOCL had to develop a Railway siding for receipts of Iron ore fines, a grinding unit at its pellet plant to utilize both magnetite and hematite ore procured from open market. In the absence of captive mines, KIOCL has to run its pellet plant from ore purchased/ sourced from NMDC and other private suppliers at a higher landed cost, thereby operating at very thin margins. Against all odds, KIOCL is still standing high making profits and consistently paying dividends to GOI.
India has emerged as world’s 4th largest steel producing nation with 81.2 Million tons steel production during 2013. While India has a huge potential for growth of its Iron& steel industry, the demand has not picked up in recent past as expected. This is mainly owing to the delay in implementation of infrastructure projects due to environmental and other legal hurdles. During 2014, domestic steel industry faced severe shortage of iron ore as most of the mines in Karnataka; Goa & Odisha were closed due to legal issues. With international iron ore prices falling steeply during 2014, this has resulted in huge inflow of imported iron ore. However clearances have been given now to many mines to operate and permits are being issued for enhanced production in some Odisha mines and the situation has started improving. The present government at centre is taking many initiatives for clearing such roadblocks and the results are expected to show soon.
The pellet capacity in the country is continuously on the rise and has reached around 85 million tons now. Government had encouraged the industry to grow in order to utilize the iron ore fines which is available in plenty. However the sluggishness in steel market has resulted in poor demand for pellets and the pellet plants are operating at less than 50% capacity at present. The way out for survival of these plants is only through exports at present. The additional freight charges by railways and 5% export duty, in addition to the falling international market prices has made exports unviable. Removal of additional freight charges by railways for movement of iron ore used in pellets for exports and withdrawal of export duty can help these plants to restart exports.
What Potential Iron & Steel sector has for India.
India's steel demand is expected to rise by 4-5 per cent this year and will touch 15 per cent CAGR after financial year 2017 as the country has the potential to emerge as the second largest steel consuming market after China during FY15-20.
With expectations of the new government's thrust on jump starting stalled projects initially followed by pushing large flagship projects, including the freight and industrial corridors, it is expected that India will begin moving back on the path of materials intensive growth by the end of this year.
It is expected the steel demand to rise by 4-5 per cent this year as against average of 2 per cent over FY13-14, 8 per cent in FY16 and a 15 per cent CAGR after FY17 when policy initiatives of the new government begin to impact materials demand, meaningfully.
What are the challenges “Iron & Steel” sector facing today?
The steel sector is one of the most crucial sectors in the development of a nation and is considered as its backbone.
Stagnating demand, domestic oversupply and variable prices in the last four years have hit Indian steel makers. Endemic deficiencies are inherent in the quality and availability of some of the essential raw materials available in India, example high ash content of indigenous coking coal adversely affecting the productive efficiency of iron-making and is generally imported.
Further, steel is a capital intensive industry; steel companies in India are charged an interest rate of around 14% on capital as compared to 2.4% in Japan and 6.4% in USA.
Other challenges such as:
Besides these, Indian Steel makers also lacked in International competitiveness on determinates like product quality, product design, on time delivery, post sale service, distribution network, managerial initiative, R & D, information technology and labour productivity etc.
Further, increasing environmental concerns are leading to stricter regulatory enforcement, which has adversely impacted iron ore mining in India. Older mines are getting deeper and new mining licenses are not coming through due to regulatory and governance issues. These are the challenges that need to be tackled amicably to see the realistic growth in this sector in coming days.
What are the recent activities of KIOCL and how do you see the KIOCL in the year 2020?
KIOCL has chalked out massive expansion and diversification plans for its exponential growth and long term sustainability / viability in the present competitive market.
Company has signed a MoU with M/s APMDC and RINL for exploration and exploitation of mineral deposits in the District of Ananthpur, Andhra Pradesh and also for setting up of value addition plants in the state of Andhra Pradesh. Company is also in dialogue with West Bengal Mineral Trading Development Corporation (WBMTDC Ltd) for exploration and development of mines in the State of West Bengal.
The Govt. of Karnataka has revised the eligibility criteria for participation in auctioning process of C-category of mines & they will be shortly auctioning ‘C’ category mines and we shall be putting our efforts to acquire a captive mine through this format.
To aid the Pelletization programme in the country, KIOCL is in active dialogue with sister PSU’s viz., SAIL, RINL and NMDC to set up Beneficiation and Pelletization plant at their mine heads.
KIOCL has set up a new business vertical called Operation and Maintenance (O & M) of Beneficiation and Pelletization plants and has already signed few contracts with sister PSU’s.
Company is also working out on opening up new verticals wherein there are less number of players and ample scope for business such as e-commerce, solar energy, eco- tourism, project management consultancy to name a few.
KIOCL has recommenced export of Pellets and has recently exported one shipment of pellets to Iran. KIOCL is currently working out on exports of pellets to Iran in Rupee Trade mechanism and conversion of imported ore into pellets at its pellet plant at Mangalore and its re-export to Iran.
In the absence of captive mines, company is all set to diversify in various potential areas and is in the path of re-inventing itself. The above opportunities created in very short span of 2 years are now taking shape. Apart from the above, there are many other diversification and rejuvenation plans of KIOCL which are still in a fluid form, and would require some time to concretize. Year 2020 would definitely see a rejuvenated KIOCL with all its diversification plans fulfilled.
What are the major thrust areas in the coming days? Elaborate KIOCL’s Future Plans.
KIOCL Ltd., the erstwhile Kudremukh Iron Ore Co. Ltd., was started as a premier mining, beneficiation and pellet making company. The competency and expertise of KIOCL in the country is for Pelletization and beneficiation and it is currently still the front runner.Any comments on Government policy?
KIOCL has recently signed a MoU with M/s APMDC for exploration and exploitation of iron ore deposits in Nemakal village of Ananthapur District in the State of Andhra Pradesh which will enable Company to regain its lost identity as a mining PSU.
The Company with its expert workforce and expertise is venturing out to a business vertical for taking up Operation & Maintenance contract on standalone Beneficiation and Pelletization plants. In this regard, company has already entered into pact with some of Public sector companies. Today there is lack of O & M operators for Pellet plant in the country and with our decades of expertise, there is no dearth in this field.
Currently, Company is in dialogue with sister public sector companies such as NMDC, SAIL and OMDC for setting up of beneficiation and Pelletization plants at their mine heads utilizing low grade ore.
Company is also contemplating on opening up new verticals wherein there are less number of players and ample scope for business for one and all such as e-commerce, solar energy, eco- tourism, project management consultancy to name a few.
Company also intends to set up 1.5 MTPA Pellet plant at SAIL, Bokaro on Build, Own and Operate (BOO) basis which will augment the Pelletization programme in the Country.
The “Make in India” concept envisioned by the new government guided by its supporting policies is expected to provide immense potential to the markets in the New Year. The optimism owing to an expected resolution of issues around the mining industry and the addition of new steel making capacities has held the hopes very high for New Year.
The healthy optimism is lead by the expected reopening of the mining industry in the coming months. Goa and Karnataka are likely to see some activity beginning by mid-2015, if not early. Green and brown field steel expansion plans are right on track and will give a boost to production growth by nearly 5-6%.
Raw material situation is definitely going to give advantage to the steel makers. Even if the steel majors would like to import or buy domestically, the markets will offer good opportunities 2015. Global iron ore and coal prices will remain low due to surplus availability while domestically, the situation will open up after the restrictions are pulled down by the state governments and apex court. Orissa and Jharkhand are likely to come back full force around mid-2015 and with the state government signing up MoUs with steel producers for supply of raw materials, the situation is soon going to give support to the steel parties.
The “Make in India” campaign is the best hope for the steel producers who are also looking to expand their capacities and provide nearly 125 million tons of crude steel strength to the country in the next fiscal. The campaign is likely to boost the country’s steel consumption potential as well in the coming years. India's per capita consumption is around one-fourth of the international average sitting close to 60 kgs and this keeps the hopes renewed for further enhancement and betterment for the country. The potential is quite strong by the government’s policies would build the path towards harnessing it.
The government is planning a wide array of infrastructure projects which includes major and minor ports, highways, freight corridors and even construction and rural projects to boost the consumption of steel and create a robust demand going ahead.
Hence, after the worst possible fears coming true and spoiling the spirits in 2014, the entire industry is now pinning its hopes on 2015. The worst is over and so is 2014. The expectations are very high from the coming year and so could be the results as well.
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