Tata Steel Thailand is scouting for iron ore mines in Indonesia and Thailand in order to turn around its mothballed mini blast furnace unit in that country.
Tata Steel Thailand has three units: while two are scrap-based, the third one commissioned in 2009-10 is a 0.5 million tonne per annum (mtpa) mini blast furnace-based unit, in which the steel major had made investments of $ 120 million in order to improve the quality of its high carbon steel products.
However, while the two scrap-based units have been doing well, the blast furnace unit, being the first one in that region (of Thailand) had been incurring big losses right from the start, first because of inexperience in running such a unit and second because of rising cost of iron ore and coke it had been buying.
The unit incurred ?huge losses? for Tata Steel Thailand.
?Being on the learning curve, we were using poor coke, initially, (and incurring losses). It was a Catch-22 situation, we wanted to know the asset?s capability and thus consciously took a decision to incur losses and kept running it in order to allow the unit to get its act together,? said Tata Steel managing director HM Nerurkar, speaking exclusively to FE here.
He, however, added, that a recent study by the company had indicated that ?even if the unit was run at top 5% of operating parameters, we would still incur loss?.
Thus, rising iron ore and coal prices finally compelled the company to mothball the unit in the end of July. ?Iron ore and coke prices have become so high that you cannot make medium or low-end quality (steel) so we have stopped it. We are now looking for iron ore resources in Indonesia and Thailand. If we are successful we will restart it otherwise right now we have mothballed it,? said Nerurkar.
Going forward, if it succeeds in finding an iron ore resource early, the company wants to produce 50% hot metal through the blast furnace route while the balance 50% output would come from use of scrap.
Scrap-related long-term contracts had so far been preventing the company from looking for iron ore mines in Thailand which has reasonable iron ore reserves as it exports 4 million tonne of the mineral to China each year.
Tata Steel Thailand?s production and deliveries of finished steel in Q1 FY12 was 0.33 million tonne each which was 7.6% higher than the 0.30 million tonne recorded for production and deliveries in Q1 FY11.
Also, the company?s turnover at R1,116 crore ($ 250 million) in Q1 FY12 was up 28.0% from the R872 crore ($195 million) recorded in Q1 FY11 with Ebitda in Q1 FY12 at R57 crore ($ 13 million) was flat compared with R56 crore ($ 12 million) logged in Q1 FY11.
Nerurkar said while Tata Steel Thailand was expected to post loss in Q2 FY12 too because of costs involved in running and mothballing the blast furnace unit, it would however be back in black from Q3 FY12 onwards.
