Jindal Stainless Agrees To Buy A 49% Stake In An Indonesian Nickel Smelter For USD 157 Million

Jindal Stainless Purchases A 49% Share In An Indonesian Nickel Smelter Facility For USD 157 Million

Jindal Stainless Ltd (JSL) stated that it has bought a 49% equity stake in an Indonesian Nickel Pig Iron (NPI) smelter facility for USD 157 million (around INR 1,300 crore).

Nickel is a vital element needed to produce stainless steel, and this merger will assure extended nickel availability to the company since it has expansion plans for satisfying the growing stainless-steel demand in India.

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Investments will lay out over a two-year period of INR 750 crore-odd in the initial year and INR 550 crore in the following year and will be mostly funded via the company's internal accruals.

Meeting Demand

The acquisition equips JSL with the advantages of backward integration since it will acquire a stake in the NPI business. The facility is anticipated to be commissioned in the next two years, with a yearly 200,000 metric tonnes nameplate production capacity of NPI with a 14% average Ni content. This sets a marker for the first-ever strategic partnership initiated by an Indian company to get a stake in global nickel reserves since India does not have sufficient nickel ore resources, as per company sources.

The company's yearly production of stainless steel is being ramped up to 3 million tonnes (mt) starting April compared to the present 2 mt. The total nickel demand is 125,000 tonnes, from which 15-16 percent is sourced from nickel pig iron. After this collaboration and commissioning of facilities, the company aims to completely meet its demand for nickel pig iron.

About 50 percent of the firm's raw material expense is nickel, and they have been depending on imports from the open market for the key offering. JSL also fulfils its bulk nickel needs through stainless steel scrap and ferronickel. India persists in being nickel deficient, and the majority of its needs are fulfilled by Indonesian imports.

According to Abhyuday Jindal, MD, and Jindal Stainless, the company stated that the merger would improve value for stakeholders. This groundbreaking merger will prove beneficial for stakeholders, with JSL getting a stake in the supply of nickel for creating raw material security for its SS operations. This collaboration will direct a stronger competitive edge to JSL in Indian and international markets.

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Jindal Stainless shares finalised 4.01% lower at 279.95 apiece at the NSE.

Nickel is extensively used in stainless steel and is an essential factor for the stainless steel industry worldwide.

Recently, factors like geo-political tensions, logistical issues, pandemic-induced limitations etc., impacted the supply-demand dynamics of nickel, thus raising the price and uncertainty for its downstream industries like stainless steel.

At present, JSL fulfils its bulk nickel requirement using stainless steel scrap and NPI/ ferro nickel, and this merger will guarantee a surplus NPI supply for JSL.

No Forecasts

Nickel production is a volatile commodity, and no projections can be made at this point in time. But, in comparison to similar operational businesses or acquisition models, they have set an IRR benchmark (internal rate of returns) of around 25 percent which signifies that they anticipate payback in the duration of 4 years.

After the upcoming facilities, JSL will directly source its nickel pig iron at market price from its Indonesian JV. They will wait and watch how the JV works out and make further decisions for the future for smelter capacity expansions.

According to the Procurement Resource article, Jindal Stainless Ltd (JSL) has bought a 49% equity stake for USD 157 million (around INR 1,300 crore) in an Indonesian Nickel Pig Iron (NPI) smelter facility. The following project's investments will lay out an investment plan for INR 750 crore-odd in the initial year and INR 550 crore in the following year, which will majorly be funded by the company's internal accruals.

This is a strategic partnership for the firm that will allow it to stop its reliance on third parties for importing Nickel Pig Iron (NPI) for its stainless-steel production. As a closing statement, the company made no further projections since nickel is a volatile commodity, but JSL will directly source its nickel pig iron at market price from its Indonesian JV. Future expansion plans are currently on hold.