Sajjan Jindal-led JSW Steel is planning to shut those it has in Chile because of plummeting prices and rising global supply. The mines will remain closed until prices rise or costs come down, JSW Steel joint managing director Seshagiri Rao told ET.

"Iron ore prices have dropped so low that the unit does not make money at the current price. We are shutting down in May for some time," Rao said.

JSW Steel bought the eight iron ore mining concessions in 2008 for $52 million and has so far invested about $250 million in Chile. They made a total loss of $8.56 million (Rs. 53.61 crore) in the last three quarters before interest, tax, depreciation and amortization.

By comparison, JSW Steel is expected to report a consolidated profit of Rs 2,258.76 crore in this fiscal year. Analysts said JSW Steel's strategy overseas would be cautious going forward, adding it had bought the overseas assets at a time when commodity prices were high. Falling prices have made it tough for miners producing iron ore above the current rate of about $60 per tonne, less than half what it was last year.

Many high-cost mines are shutting down but low-cost producers such as Rio Tinto Group, BHP Billiton Ltd and Vale SA are continuing to increase production, making it tougher for JSW Steel and other producers to survive.

"JSW Steel's cost of production at its Chile mines is close to $90 per tonne. So effectively they were not making money in the new price environment. But this development won't have any impact on the stock," said Centrum Broking analyst Abhisar Jain.

Iron ore prices are expected to average $66 per tonne in 2015 and unlikely to improve in 2016, UBS AG forecast in January. "It is a well-timed strategy. JSW Steel will avoid making continuous operational losses on the mines," said Goutam Chakraborty, an analyst at Emkay Global.

 

Source : http://economictimes.indiatimes.com/

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