JSW's pipe mill in the US close to shut down

JSW Steel's pipe mill in the US is near to a shut down as its capacity utilisation has fallen to just 3 per cent in the first quarter of this financial year due to the gloomy oil and gas industry in the country.

The capacity utilisation at the plate mill also fell to 16 per cent during the period. The capacity utilisation was a bit higher in the last financial year at 10 per cent for pipes and 21 per cent for plates, respectively. It produced 37,859 net tonne of plates and 4,598 net tonne of pipes in the June quarter, while the sales volumes was lower at 27,542 net tonne of plates and 5,618 net tonne of pipes. It reported an EBITDA loss of $5.45 million (Rs 36.62 crore) for the quarter.

For the entire FY 2015/16, the US mill's performance has been severely impacted due to lack of orders for pipes from the hydrocarbon sector. The unit produced 197,408 tonne of plates and 54,262 tonne of pipes in the last financial year. In view of the continuing losses at the plate and pipe mill operations, JSW Steel USA had carried out an impairment assessment of its fixed assets (at Rs 905 crore) in the third quarter of the last financial year. The US mills posted a net loss after tax of Rs 1,361 crore in 2015/16 after provisioning of impairment charges, compared to Rs 302 crore in the previous year.

In 2007, Sajjan Jindal's JSW Steel bought three steel mills in the US, controlled by his elder brother Prithvi Raj Jindal, at an enterprise value of $900 million. It planned to sell the excess steel slabs from its Indian plant, convert them into pipes and sell them at $1,500-1,600 a tonne in the US. The revenues target was $800 million in 2007/08 and $1.5 billion in 2008/09. But it became a drag, largely because of poor demand, despite being located in the heart of the US oil and gas industry located in the Gulf of Mexico. They enjoy the advantage of their own barge unloading facility and good rail and truck transportation facilities.

JSW group posted a net profit of Rs 1,109 crore for the June quarter as compared to Rs 21.19 crore in the same period last year. Total income marginally increased to Rs 12,919.23 crore from Rs 12,683.60 crore same period last year. The share price of JSW Steel rose 6 per cent after the result and closed at Rs 1,738.30 on Bombay Stock Exchange.