Reuters reported that shares of JSW Steel fell to a more than two year low on October 3rd 2011 on media reports of raids by the country's federal investigation agency at its plant, which the company denied and a rating downgrade by a US investment bank.
Morgan Stanley has downgraded the stock to underweight from equal weight on continued concerns about its risk to raw material availability.
Earlier, local television channels had reported that the central investigation agency had raided its Vijaynagar plant but the company denied the raid, saying a team visited its plant to seek information on its purchase of iron ore.
Investors dumped JSW Steel shares on October 3rd 2011 to a day low of INR 540, down by 8.8%. The steel maker’s shares have lost more than half its market value in 2011 so far. At 1.11 PM local time, they were down 6.5% at INR 553.5.
Morgan Stanley said the availability of iron ore was becoming more difficult in Karnataka. It added that "Iron ore situation is becoming tighter in Karnataka, impinging on JSW's ability to source ore and pushing up its production costs. When we superimpose JSW's company specific issues on the broader macroeconomic risks, we conclude that JSW may have more downside than upside from here, notwithstanding the trailing weak performance."
JSW Steel was affected in August after the country's apex court put an interim ban on iron ore mining in Bellary district of Karnataka due to illegalities. Last week, JSW Steel, in which Japan's JFE Holdings owns 14.8%, said it has scaled down steel production at the Karnataka plant to 30% of its capacity on lack of iron ore supplies.
Following that, its VC Mr Sajjan Jindal also told reporters it may have to shut its Vijaynagar plant, which accounts for 10 million tonnes of JSW's total 14.3 million tonnes capacity, if the ore supplies did not improve.
Its Japanese affiliate JFE would book an appraisal loss of around USD 1 billion on its securities holdings for the September quarter due to a drop in market prices. Of this USD 778 million will be on account of its holdings in JSW Steel.
However, the company got some relief when it won around 0.4 million tonnes of iron ore at an auction held by state-run miner NMDC last week, raising hopes among investors of improved production in the coming weeks.
(Sourced from www.reuters.com)
