NMDC to invest Rs 40,000 crore in next 8 years for capacity expansion

Bengaluru: Iron ore miner NMDC Ltd has set an ambitious plan to invest Rs.40,000 crore in the next eight years to reach the mining capacity of 75 million tonnes per annum (mtpa) by 2018-19 and 100 MTPA by 2021-22.

Of this, around Rs.7,800 crore would be invested between this and the next fiscal year, chairman and managing director Narendra Kothari said at the company’s annual general meeting on Tuesday.

Iron ore demand has been subdued in domestic and global markets, primarily because of weak demand in the wake of excess steel capacity globally, which is estimated to be around 2 billion tonnes per annum. Also, there has been weak demand from China which impacted the pricing.

Notwithstanding the current subdued demand, Kothari said, the company hopes there would be an improvement in the steel demand domestically because of increased infrastructure activity.

Right now, NMDC produces 30 million tonnes per annum of iron ore, while it has a capacity of 48 MTPA. Last year, the company had to resort to steep cuts in iron ore prices because of subdued global demand. “Prices are difficult to predict but it will remain more or less at $55-65 per tonne. If the company is able to sell the product at higher prices we will, if it needs correction we will reduce the prices, but we have to sell in any case,” Kothari said.

The company had delayed price cuts in the past as global iron ore prices fell rapidly and it could not align to it quickly. This had resulted in loss of volumes.

“ The company has not disclosed mine-wise details for achieving the 75 MTPA and 100 MTPA capacity targets. In view of the weak demand and potential increase in local supply in the coming years, these plans look very optimistic,” said IIFL Institutional equities in their September research report.Of the total capex outlay, the company would spend Rs.3,800 crore this fiscal and Rs.4,000 crore next year.

Around 70% of NMDC’s iron ore comes from its plants at Chattisgarh and the rest from Karnataka. “Going forward, on the back of additional mines expected to come on stream, we expect an iron ore sales volume growth of 7.1% in FY15-17,” ICICI Direct said in its NMDC results update report in August.

To revive exports, it also talking to a Japanese customer. “ Our exports have not been good, infact they ran into losses because of higher export duties. But we are now talking to the government to bring it down to the lowest level or to zero,” Kothari said. Last fiscal year, exports stood at 8% of production.

NMDC had earlier guided volume projections of 35MT in FY16, which it is unlikely to achieve.” Their production/dispatches declined by 18% in August 2015 on a year-on-year basis. Even after assuming acceleration in domestic dispatch and cut in export tax, NMDC’s volume guidance will not be met,” said the IIFL report.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.