Tata Steel Ltd.

Tata Steel, the world’s sixth largest steel maker, is raising its annual iron ore production by 55 per cent to 17 million tonnes in India over the next two years. The expansion is expected to cost about Rs 1,100 crore. The move is aimed at insulating its steel plant at Jamshedpur in Jharkhand from fluctuating raw material prices. The increased ore output will be used to feed the Jamshedpur plant, which is raising its operational capacity to 10 million tonnes by 2011 from the current seven million tonnes.

Tata Steel has two captive mines in the country that produce 11 mt annually. The entire production from the mines is consumed by the Jamshedpur plant, eventually helping the company to reduce its input costs by one-fourth.

Tata Steel will double the production from its Joda mine in Orissa, which produces 4 mt of iron ore. The cost of expansion would come to around Rs 600 crore. Another mine at Noamundi in Jharkhand will increase its production to 9 mt from the current 7 mt at a cost of Rs 500 crore.

While the captive mines produce iron ore at a cost of $15 a tonne, the effective prices in the local spot market hover around $50-60. Thus, running steel plants with the captive iron ore reduces costs to a certain extent and increases margins.