Jindal Steel and Power Ltd (JSPL) is a dominant player in the steel, power and infrastructure sector with business operations spanning across the states of Chhattisgarh, Odisha and Jharkhand. Ferro chrome is one of the most imperative requirements needed for the manufacturing of stainless and special steel. High grade chrome ore being one of the pre-requisites for making ferro chrome is primarily sourced from the chrome ore mines in Sukinda Valley of Odisha. The stainless steel industry has gradually started to ramp up production after lockdown restrictions were eased in the country. With demand for steel beginning to increase, lower ferro chrome ore output is resulting in chrome ore shortage in the country. Ferro chrome prices are expected to rise in the near term as the market faces a perfect storm of reduced raw material supply and rising demand from the stainless steel industry. Prices have responded to the fundamentals on the back of tight ore supply in the domestic market and rising demand for alloy from the steels mills. Ferro-chrome producers without their own source of chrome ore supply rely on merchant mines, which have limited availability because of lockdown measures in the country. State-owned Odisha Mining Corporation (OMC) has postponed its monthly chrome ore auction due to lower output affected by limited labour availability and lockdown induced restrictions, while operations at Tata Steel’s Sukinda mine have also stalled. OMC and Tata Steel are currently the only major merchant miners in the country to sell chrome ore in the domestic market. Balasore Alloy, a ferro-chrome producer with access to its own chrome ore mines, is not operating its ferro-chrome plant for the last few months because of power supply issues plus its Sukinda-based chrome ore mine is also operating at a much lower capacity. JSPL reported robust growth in steel production in November, witnessing year-on-year growth of 15% in Standalone Steel Production with 6,14,000 tonnes compared to 533,000 tonnes of Standalone Steel production a year ago during the same period. The export sales contributed to 21% of total sales volumes in November 2020 with exports also growing at a rate of 10% (Y-o-Y) for November 2020.
The company management also reported that since domestic steel demand is rising in H2FY2021 and so is JSPL’s production. With domestic markets recovering, the company is focusing more on value-added products and believes the company’s portfolio will witness further strength in the Q3 & Q4 of the financial year 2021. The share price of JSPL is currently hovering around Rs 270 levels and commodity analysts tracking the company are quite bullish on the steel sector in the medium term. They expect the stock to appreciate by 25% in the next six months’ time frame.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.