Hike in iron ore export duty is a good step: Kalyani Steel

However, he says, in the short-term, there is no impact basically because there are no exports from Karnataka.

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.

Q: We understand now that with the government having raised the export duty on iron ore to 30%, the company like yours would stand to benefit. Can you give us a sense of how this could impact you?

A: It is a very good step by the government. It will have a very large impact in time to come as the cost for domestic industry should go down.

In the short-term, there is no impact basically because there are no exports from Karnataka. Experts were banned sometime in July. So, right now we can’t say there is a reduction in the price for domestic industry. As you may be aware, all the ore in the state of Karnataka is sold by E-auction by the monitoring committee.

When monitoring committee started doing e-auction, the total inventory was 25.9 metric tonne. Out of that, 7.75 metric tonne was the calibrated ore. Till now, they have already auctioned around 18.3 million tonne leaving behind just 7.6 million tonne. Out of that, another 1.7 million tonne will be auctioned tomorrow and day after. So, there is very little ore which is left in the mines for e-auction. In the process, the prices in e-auction, particularly for the calibrated ore, are going up.

We are only looking to Supreme Court’s decision on January 20. Most likely they may permit opening of mines in category A&B. Category A is fully resolved. In category B, some minor problems are there, but they will be asked for R&R package and some penalty. They may start to operate. In case it does not happen or it takes longer, the industry will have no other option but to close down their plant. Even today we have stopped one more furnace. We are operating at 50 to 60% of our capacity.

Q: In tomorrow’s auction, which is a 1.7 to 1.8 million tonne, how much higher do you expect the prices to be?

A: This 1.7 million tonne will be auctioned tomorrow and day after tomorrow put together. More problems are in calibrated ore, which companies like us can use as we do not have center plant as of now.

The prices, which were in the last auction, Rs 8,200, we are not keen to buy because it does not make sense to buy iron ore at that price and make our product at a competitive cost to be able to sell profitably.

We would not participate at the levels of last auction. I believe everybody else should do the same thing. Anyway, requirement of every company is different. I don’t expect prices to be much lower than this tomorrow.

Q: If you have already shut one more furnace down, could you tell us the impact that will have in your FY12 revenues and margins?

A: The impact is already there after the closure of mines and plant in August and September, but we are doing selective business. As along as there is some margin, we are operating otherwise we are not. We have reduced our capacity by shutting one furnace. We will definitely be positive, but the profit will be nowhere as compared to what it was last year.

Q: Could you just tell us what your current inventory stand at? How long is it going to last because you already operating at 50% capacity?

A: At this level of operation our inventory is for a month.