KIOCL Ltd (formerly Kudremukh Iron Ore Company Ltd), a wholly state-owned miniratna enterprise under the Union steel ministry, is in the process of strengthening its balance sheet by fine-tuning its production line and implementing new programmes.
The company, which had shut down its captive iron ore mining operations in the Kudremukh belt in Karnataka in December 2005 following a Supreme Court order, has been struggling in the absence of in-house raw material for its pellet manufacturing plant. Currently, KIOCL is the only government-owned pellet exporter in the country.
Speaking to FE , KIOCL chairman-cum-managing director K Ranganath said the company would invest around Rs 120 crore this financial year to modernise its pellet plant in Mangalore by installing pressure filters to increase output and quality. The pellet production level would increase to 3.5 million tonnes from the current level of 1.5-2.5 million tonnes a year by the first quarter of the next fiscal.
After shutting down its captive iron ore mines, he said the company has been procuring iron ore from the open market at roughly $110 per tonne, which pushed up the pellet production cost to $145 a tonne. If the company has its captive iron ore mines, he said, the iron ore could be mined at a cost of $15-20 per tonne and the production cost of pellet would come down to $50 per tonne.
The company has applied to some state governments to secure captive iron ore mines to reduce its pellet production cost. The Karnataka government has accorded in-principle approval for granting mining lease of 116.5 hectares to the company in the villages of Hombalghatta and Hosahalli. The ministry of environment & forests has accorded the environmental clearance and the company is expecting the final approval from the state.
He also said the company has approached the Union government to scrap the export duty on pellet, since it?s a value-added product. Currently, the government has levied 5% export duty on iron ore fines and 15% export duty on iron ore lumps. The government is considering pellet also as iron ore lumps since it?s being used as a raw material in steel plants, and slapped the same 15% export duty on pellets.
The company?s fortune also remains tied to the implementation of infrastructure programmes in China. In fact, 40% of its pellet production is exported to China while the remaining is traded in the domestic market to steel companies like Ispat, Jindal, Essar and Bhushan. The pellet price was as high as $193 per tonne in May, but declined to $158 in June and $140 in July. The fall in the pellet prices follows the Chinese government slowing infrastructure projects after conducting the 2008 Olympics.
Ranganath said about 70 million tonnes of imported iron ore has been lying at various shipping ports of China. However, iron ore prices are expected to climb to the $175 levels by September this year, and hence, the company could also increase its profits.