Karnataka steelmakers mull legal action against private iron ore miners

Written by Promit Mukherjee | Mumbai | Updated: Feb 3 2014, 20:51pm hrs
Steel, sponge iron and pig iron manufacturers and industry bodies in Karnataka are exploring legal recourse against standalone, private miners in the state after iron ore prices under the e-auction route jumped by over 100% in the last one month.

In a set of letters written by industry bodies in Karnataka on January 31 to three different ministries mines, steel and environment the private miners have been accused of cartelisation to fix and sell iron ore under the e-auction route at prices much higher than the base price of NMDC, the benchmark for fixing iron ore prices in India.

Since the private miners in the state are free to fix prices, they are taking undue advantage of the abnormal demand-supply mismatch, forcing the consuming companies to pay unfair premium, they said.

As a result, while prices had been going up in the state as against the rest of the country since the last four months, in January they went up by over 100%.

In fact, sources said, if this situation continues, the iron ore-consuming firms would resort to legal action against the miners.

In one of the letters, the Karnataka Iron and Steel Manufacturers Association (KISMA) said the base prices of 61% Fe Iron Ore Fines has been between Rs 2,000 to Rs 2,220 a tonne since March 2013 till date for NMDC, whereas the base prices by private mining companies were in range of Rs 2,250 to Rs 2,475 till September 2013, and have been increased to Rs 5,000 a tonne in January by making a cartel to take advantage of the shortage of iron ore.

The bidder has to bid over and above base price and is liable to pay 10% royalty and 12% Forest Development Tax (FDT) in addition unlike every other place in country where it is borne by mining companies. Fe grades in iron ore classification indicates the quality of ore available from a particular mine.

An Fe grade of 60% and above is generally considered to be of good quality and below 60% of Fe grade or content is said to be of poor quality.

Lower the grade, the poorer is the iron ore quality and requires more investments in beneficiation or blending to bring it to a higher quality.

According to the December e-auction data available with the state, for the round of e-auction held on December 13, the base or floor price of iron ore fixed by NMDC for the fines produced from its Kumaraswamy mines was fixed at Rs 2,050 a tonne for Fe grade of 60%.

Similarly, the price of ore fixed for 59% Fe grade for the same e-auction on December 13 was at Rs 2,110 a tonne, the base price of NMDC.

This is in sharp contrast to Rs 3,100 a tonne and Rs 3,400 fixed for 56% and 58% Fe grade, respectively by private miners for the e-auction held on December 21 in Karnataka.

According to the data of the e-auction conducted by the Supreme Court-appointed monitoring committee, the base price of 59% Fe grade for e-auction fixed on December 21 was even higher than the current prevalent rates of 59% Fe grade in Orissa, which is available at Rs 1,700 a tonne, including royalty to the state.

Currently, the demand for iron ore in Karnataka stands at 40 mtpa and the supply is close to 18 mtpa 8.5 mtpa from NMDCs mines in the state and 9.5 from the mines of private miners.

This has led to a shortfall of almost 8 mtpa forcing the sponge iron players to operate at 25-30% capacities while bigger steel firms are between 60-80% capacity utilisation. Apart for this, due to high prices, they are seeing a severe strain on their finances too.