The two pipe conveyor projects will transport ore from the mines to the company's plant in Karnataka
JSW Steel is investing nearly Rs 350 crore to set up two pipe conveyor projects that will transport ore from the mines to its plant in Karnataka.
The projects, which will be completed by the end of the present financial year, will save the company as much money - around Rs 350 crore - in annual logistics cost to transport the raw material.
At present, hundreds of trucks are deployed to move the ore from the mines to the plant in Vijayanagar.
"The money saved is like money earned and will reflect in our margins," said an official from the industry.
Among its peers, Essar Steel has two slurry pipelines - both of which run over 250 km - that transport ore from mines to beneficiation plants in Andhra Pradesh and Odisha.
"For whoever gets Essar Steel, ArcelorMittal or anyone else, these pipelines will be of huge help as these reduce costs," said an executive from the industry.
A beneficiation plant processes low grade iron ore so that it can be used in steel making.
For JSW Steel, the two pipelines will help at a time when cost of raw materials like iron ore and coal is slowly inching up.
Its materials expense increased 22 percent in the second quarter of the present financial year, as compared to a year ago.
The pipeline will also play a crucial role in the company's plan for raw material security.
JSW Steel has bagged five mines in Karnataka through auctions. Speaking about the acquisition cost, Joint Managing Director and Group CFO Seshagiri Rao said: "The premiums are very, very high."
The five mines have reserves of 9.7 million tonne.
"The average premium is 90 percent for these mines plus mining cost... I do not think there will be a saving on account of captive mines. But pipe conveyor will definitely reduce the overall cost of transportation," Rao said.
While two of the five mines are already operational, the rest will start operating by December.The Vijayanagar plant currently churns out 12 million tonne of steel a year, and requires about 22 million tonne of iron ore.