JSW Steel: Bellary mining ban adds to margin pressure

Recent developments in the steel industry and data from JSW Steel could provide the necessary trigger to pull the stock out of the dumps. August data showed thaconveyor belt ore sample cutting machinet JSW Steel produced 6.64 lakh tonne of steel, during the month, 23% higher than it did in August 2010. The growth comes despite the suspension of mining activities in Karnataka, indicating that the company's second-quarter results could be better than previously anticipated.

Following the Supreme Court's ban on mining and transporting iron ore from Bellary district in Karnataka since end-July, JSW Steel had to cut its production due to shortage of the steel-making ingredient. However, the company managed to increase production by 11% over the previous month. This was because of commissioning of its 3.2 MTPA expansion project at Vijayanagar, Karnataka, despite functioning at 75% of its installed capacity due to iron ore shortage. While the overall production would continue to be impacted, iron ore sale through an e-auctioning process would provide some respite. But even as this will ensure sales growth, profitability will be impacted as the cost of production will increase, going by the e-auction premium. The first round of e-auctioning, which was...