The Supreme Court?s extended ban on mining in Tumkur and Chitradurga districts of Karnataka is expected to cast a shadow on the iron ore miners and steel companies. The ban on two more districts, in addition to the one in Bellary, will result in a sharp decline of iron ore production which will be followed with a severe cut in steel production. The performance of companies such as Sesa Goa and JSW Steel is expected to be adversely affected, said a report of Angel Broking.
Sesa Goa said on Monday that owing to the ban on mining the company?s mine in Chitradurga will be stopped with immediate effect and thus it will adversely affect to some extent the performance of the company. The annual permitted capacity of the said mine at present is 6 million tonnes, the company added.
The two districts alone account for approximately 20% of Karnataka?s iron ore production. Earlier on July 29, the SC had ordered a blanket ban on mining in Bellary district, which accounts for 80% of Karnataka?s iron ore production.
With the extension of the mining ban, iron ore production will decline drastically in the state which will be followed by severe cuts in steel production in the region. Some of the plants in the region have already shut down, while several plants are running at lower utilisation levels on the back of shortage of iron ore to feed their furnaces. Steel industry in the region requires approximately 2.9 million tonnes of iron ore per month. Currently iron ore from Karnataka is used to feed plants of companies that include JSW Steel, Kalyani Steels, Mukand Steels, Kirloskar Ferrous, MSPL, BMM Ispat.
Further, several sponge iron manufacturers in Tamil Nadu and Goa also source iron ore from Karnataka. On the supply front, NMDC?s Bellary mine is the only major mine operating in the region; however, it is still to achieve its targeted run-rate of 1 million tonne per month from its Bellary mines. The Supreme Court will look into a rehabilitation and forestation package but this may take several months, Angel Broking said. The current inventory size of 25 million tonnes of iron ore will provide a temporary succor to the industry, it added.
With Sesa Goa deciding to shut down its operation in Chitradurga mine till further order from the SC, its overall performance will take a major hit and the same will reflect in its topline and bottomline. The Chitradurga mine contributes 21.8% of Sesa?s total production volumes for FY2012.
Similarly, JSW Steel?s freight costs are set to rise. Post this ban, JSW Steel will have to procure higher quantities of iron ore from Orissa and Chattisgarh which would raise its freight costs as its blast furnace at the Bellary plant is operating at 80% of utilisation levels. It is receiving iron ore supplies of 50,000 tonne per day from the NMDC mine, Angel Broking pointed out.