The country?s top three integrated steel manufacturers, SAIL, JSW Steel and Tata Steel would soon have to hive off their captive iron ore mines into separate entities. This is because to arrive at the true pricing of iron ore and estimate the relative competitiveness of steel mills correctly, the government is working on a proposal whereby all steel companies would have to hive off their captive iron ore mines, if any, into separate companies.
Iron ore is a key raw material in steel-making since 1.5 tonne of the material is used to make one tonne of steel. The country?s largest steel manufacturer, the state-owned Steel Authority of India (SAIL) and the third largest Tata Steel meet their ore requirements through captive mines while the second largest, JSW Steel meets around 10% of its requirement through captive mines.
According to the proposal, which is at the preliminary stages, even if the companies hive off their iron ore mines into separate entities, they would be assured of raw material supply. ?Currently, fresh mining leases are given for a period 10 years; we plan to increase it to 30 years,? said an official. ?However, the companies would have to disclose the price at which they sell iron ore to their steel manufacturing units. They would be free to export but if they sell to any other player in the domestic market, it has to be at the same price at which they are supplying to their units,? the official added.
As of now, pricing of steel is not transparent for companies with captive mines. While those without captive resources are left to the vagaries of the market as iron ore prices are quite volatile, market prices of steel are similar for all manufacturers, which gives an edge to captive mine owners. Regulations allow captive miners to export iron ore after meeting their domestic requirements. Mining leases given to foreign players like Posco and ArcelorMittal ? who are planning manufacturing units in India ? prohibit them from exporting ore to foreign manufacturing bases.
When contacted, an official of a steel company told FE that such a move would take away the competitiveness of the units.
The proposal comes at a time when the government is facing demands from steel manufacturers to ban ore exports so that natural reserves are conserved and domestic players get the first right of usage. Standalone miners are opposed to such demands. According to them, the majority of exports are low-grade fines, which has little offtake in India thanks to lack of sintering and pelletisation facilities. If fines are not exported, it could lead to environmental problems, they say. Even then, to discourage exports, the government levies an export tax of 10% on high-grade ores, which are called lumps and 5% on fines.
Around half of the iron ore mined in the country is exported. In 2009-10, India produced 226 million tonne iron ore, of which about 117 million tonne were exported. However, steel exports the same year stood at around 4.2 million tonne and imports at 6.7 million tonne.