Jindal Steel Defers $1.3 Billion of Spending as Coal Falls Short

Jindal Steel & Power Ltd., controlled by billionaire lawmaker Naveen Jindal, will cut planned investment by 40 percent in the next two years because of raw-material shortages.

The company will spend 120 billion rupees ($2 billion) in the two years through March 2015, scaling back an earlier plan to spend 200 billion rupees, Chief Financial Officer K. Rajagopal said yesterday on a conference call. It will slow construction of its Angul steel-plant expansion in Odisha after struggling to obtain coal and iron-ore mining permits.

Mining and metal companies in India have seen licensing delayed after auditors last year said a policy of giving away coal mines without auctioning may have cost the government 1.86 trillion rupees. Weakening demand for steel has also prompted companies including ArcelorMittal and Posco to curb investment.

“It’s a wise thing to do for Jindal,” said Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai. “You don’t want to sink billions of dollars in a project when your raw-material security is at stake.”

Jindal Steel plans to spend 90 billion rupees on projects in the year to March and 30 billion rupees the year after.

The first phase of its Angul plant, with capacity to produce 2 million metric tons of steel a year, is expected to start in December, Deputy Managing Director Sushil Maroo said on the call. The company plans to triple capacity to 6 million tons in the second phase.

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The mill, India’s first to use thermal coal to make steel, is making alternative arrangements to source raw materials should mine allocations be further delayed, Maroo said.

Jindal Steel had net debt of 255 billion rupees as of June 30, which may rise to 300 billion rupees by March, Rajagopal said.

In the past quarter, India’s steel consumption grew at the slowest pace in at least five years as demand for cars and houses waned. Steel use rose 0.2 percent from a year earlier to 17.8 million metric tons, according to data from the Steel Ministry. Production climbed 3.9 percent to 19.7 million tons.

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