Metals & Mining Sector Update : Iron ore security set to flip from 2030; JSTL best by Kotak Institutional Equities
Iron ore security set to flip from 2030; JSTL best placed
The expiry of captive iron ore mines from FY2030 is set to reverse the iron ore security among private steel companies. Majority of TATA’s operating iron ore leases will expire and we estimate a potential erosion of ~30-40% of its steel operating margins post-FY2030E. We find JSTL best placed, followed by JSPL and TATA with existing iron ore leases covering ~59%/51%/31% of iron ore requirements post-FY2030E. We continue to see better risk-reward in non-integrated steel producers—JSPL/JSTL. Maintain SELL on SAIL and TATA.
Mine expiry cliff to reset TATA’s cost advantages
The expiry of captive mines in FY2030, according to the MMDR Act would significantly increase TATA’s raw material costs from FY2031. Auctions of iron ore mines in the past 10 years have seen a weighted average bid premium of ~120% (Exhibit 4). In various scenarios of blended bid premium (60-120%) for TATA’s iron ore supply from FY2031E, we estimate that 20-40% of steel EBITDA is under risk. TATA’s steel margins could potentially reset below the private listed peers JSW/JSPL from FY2031, a risk that is not factored in at current valuations.
Iron ore security post-FY2030—JSTL leads the pack
JSTL has been the most aggressive among the private trio in securing iron ore through auctions. The company has 24 active leases versus a mere 2/3 for TATA/JSPL. We estimate that JSTL is best placed, followed by JSPL and TATA, with existing iron ore leases covering ~59%/51%/31% of iron ore requirements from FY2031E. The total estimated reserves for JSTL stand at ~1.6 bn tons, while the number is substantially lower at ~430/520 mn tons for JSPL/TATA. The weighted average price paid through auctions is fairly high across names at 99%/118%/132% for JSTL/JSPL/TATA.
Policy inaction on safeguard duty puts earnings under risk
The provisional safeguard duty of 12% on steel expired on November 7, 2025. The Finance Ministry’s assent on DGTR’s recommendation for a three-year extension is awaited. The extension of safeguard duty is widely expected by all industry stakeholders and built into our FY2026E estimates. Domestic HRC prices are at 10%/0% discounts to import parity with/without safeguard duty. Steel prices are gradually declining ((-)3/(-)6% in the past 1/2 months) and pricing no extension of SFD. The FY2026E EBITDA estimates for us/consensus would be cut by 4-5%, according to the current trend.
Prefer non-integrated steel companies on constructive medium-term outlook
We remain constructive on the steel sector from a medium-to-long-term perspective, despite the near-term earnings risk from the withdrawal of SFD. We continue to see better risk-reward in non-integrated steel producers—JSPL/JSTL. Maintain SELL on SAIL and TATA.
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