NMDC’s Iron Man

FOR SUMIT DEB, being at the helm of the country’s largest public sector iron ore producer, NMDC Ltd. for over two years has meant juggling many roles — dealing with the contentious issue of mining lease renewal in states and overseeing a ₹6,000 crore expansion plan.

During the period, the company also built a three MTPA greenfield steel plant in Nagarnar, 20 kilometres from Jagdalpur in Chhattisgarh, to move up the value chain. Deb is also overseeing NMDC’s demerger into two separate units for mining and steel. The steel company, with NMDC as majority stakeholder, will get a huge advantage from ties with the country’s largest public sector miner. “The demerger will be complete in the next couple of months,” says Deb.

However, Deb, a graduate in mechanical engineering from Orissa University of Agriculture and Technology, is candid about “flattish growth”. NMDC had a great run during the post-Covid commodity super cycle with consolidated net profit rising six times from ₹531 crore in Q1 FY21 to ₹3,186 crore in Q1 FY22. However, since June 2021, profitability has been declining. Consolidated net profit was ₹1,441.9 crore in June quarter of FY23, down more than 50% from same quarter of previous financial year. Deb says the quarter was challenging as rainfall hit production.

He is focusing on capacity expansion to improve profitability. “Apart from the steel plant, our major investments will go towards expanding mining capacity, beneficiation facilities and laying slurry pipelines. The slurry pipeline will be from Bailadila to Visakhapatnam. It is slated to be complete by 2024. Total investment is ₹6,000 crore,” he says. The slurry pipeline will reduce NMDC’s dependence on railways. The ambitious pipeline will have a capacity of 15 MTPA and will be associated with facilities such as beneficiation plants. The beneficiation process involves upgrading low grade iron ore that cannot be used for producing iron and steel.

Deb is bullish on expansion. “Last year, we produced 42 million tonnes. We plan to go to 100 million tonnes by 2030. This will come primarily from our own mines. This is in line with government of India’s plan for 300 million tonnes national capacity,” says Deb.

However, one may wonder at the rationale behind capacity expansion at a time when imposition of export duty by government earlier this year to check inflation has resulted in oversupply and low prices. The government had imposed 15% duty on flat steel and alloys, 50% on all grades of iron ore and 45% on pellets. Motilal Oswal says reduction in steel production after the imposition of export duty on steel and pellets was behind the sharp correction in sales in 1Q of FY23. Deb puts the issue into perspective. “NMDC has not been exporting as a matter of policy. We want to see that ore is available for domestic markets,” he says. “But then, once the duty came into force, prices crashed substantially. But now, prices are stable. Whatever correction had to take place has happened. Things are showing an uptrend,” he adds.

“We note that unless pellet exports resume, India will continue to have marginally surplus iron ore. The change in iron ore’s export duty structure doesn’t lead to a big change in our view as export duty of 30% was anyways there on lumps with over 58% iron content. Lower iron content ore is hardly used by the industry and, hence, the impact of change in export duty is not meaningful,” says Motilal Oswal.

Deb, however, is confident about demand due to government’s massive infrastructure spending. The government plans ₹7.5 lakh crore capital expenditure in current financial year. Data from finance ministry reveals front-loading of expenditure. “Iron ore is linked to steel demand, and steel is linked to GDP, which is projected to grow at 7%. With infrastructure creation, markets are going to pick up. We are seeing an uptick. Demand has picked up in the steel sector. Post monsoon, market conditions are going to improve,” he adds.

NMDC is also bullish on global demand despite recession fears in U.S. and slowdown and environment concerns in China which, he says, will lead to production cuts and help Indian manufacturers. “In the global market, U.S. and Europe are facing recessionary tendencies. China is slowing down due to real estate crisis. Chinese are cutting production. We have an opportunity there. As India is going for 300 million tonnes capacity, we have to earmark 20% of that for exports,” says Deb.