Steelmakers brace themselves for Odisha mining ban

fe Bureau Posted online: Monday, May 05, 2014 at 0000 hrs
New Delhi : If a Goa-like ban is imposed by the Supreme Court in another major iron-ore-producing state, Odisha, production of the key raw material would be severely hit, making it difficult for domestic steel makers to cope with the situation. The country could once again stare at a situation of having to import iron ore, only the second time since the last fiscal when around 1.3 million tonnes (mt) had to be imported.

Last week the apex court had hinted at imposing a ban on mining in Odisha along the lines of the one in Goa while reserving its final order. Though the SC has lifted its prohibition on mining of iron ore in Goa with an annual output cap of 20 million tonnes, it has stated that mines cannot function on a deemed renewal basis. The state government would have to formulate a policy for granting fresh leases and only then can companies resume mining. The immediate impact of the order is that mining cannot resume instantly but could take at least a year or so.

In the case of Goa, the maximum number of mines were given leases around the same time in 1962 and their extension came to an end in 2007. Since then the mines were operating on a deemed extension basis, which cannot continue now.

This means Goa cannot add to iron ore production in the near future. Since the Goa output is wholly exported, it would continue to hurt the country’s export earnings.

The case of Odisha, however, is different. This state used to produce around 79 mt in 2010-11 when there was no mining ban or any kind of restriction. However, during 2013-14, after clampdown on illegal mining and attendant restrictions, output from the state fell to around 50 mt. This would decline further if a Goa-like ban — where mines on deemed extension would not be allowed to continue to operate — is imposed here too.

There are 187 mining leases in Odisha, of which 56 mines are currently functioning since they have environmental and other regulatory approvals. However, of these the mining lease of only 16 have been renewed while the remaining 40 are functioning under deemed extension. If the SC imposes a ban similar to that in Goa in the state, these 40 mines would have to stop production immediately, bringing down output by at least half. This would hurt the domestic steel industry since apart from Karnataka, Odisha is a prime suppliers of iron ore.

As it is, Karnataka, which produced around 43 mt in 2010-11 is able to produce only around 18 mt (half coming from state-owned NMDC) despite the SC lifting the ban a year ago while capping the annual output at 30 mt.

In this scenario, the plight of domestic steel makers can well be understood. The country produces around 80 mt of steel. Since 1.5 mt of iron ore is required to produce 1 mt of steel, domestic steel companies need around 120 mt of iron ore. Though during FY14 the total output of iron ore was 120 mt, around 15 mt was exported.

With a Goa-like ban on Odisha, output would decline further in the current fiscal even if there is some increase in production from Karnataka. The end-user industries of iron ore would be left with no choice but to look at imports once again. Due to the ban on mining, in FY14 for the first time a small consignment of 1.3 mt of iron had to be imported.

As it is, steel imports have been increasing. From a level of 5.8 mt in 2008-09, it climbed to 7.8 mt during 2012-13. The import of scrap, a substitute to iron ore for steel making also rose to a record high in FY13 at 7.9 mt.