NMDC’s Forward Integration Strategy: The Make-or-Buy Dilemma in Pellet Production

Abstract

National Mineral Development Corporation (NMDC), being the leading iron ore producer, sought to enhance its value chain by integrating into iron ore pellet production. Being a producer of iron ore, NMDC never faced any difficulty in sourcing iron ore for the production of pellets. This forward integration is aimed at enhancing value realisation from iron ore, strengthening long-term profitability, and laying the foundation for NMDC’s eventual entry into steel manufacturing.

Iron ore produced by NMDC is a raw material for iron ore pellets, which is consumed by Steel Plants as a raw material. Since iron ore pellet is a value-added material, priced high in the market, and NMDC has huge reserves of iron ore, it was decided to set up its own Pellet Plant with a capacity of 1.2 million tons per annum. As Pellet Plant is a forward integration to iron ore mining, NMDC’s vision was very clear to establish itself in the field of iron ore pellet production before venturing into setting up a Steel Plant to maximise its profit. However, they faced a critical challenge of technical expertise required for pellet production, a process that mandated specialised operational knowledge and advanced maintenance systems.