Continuing the last week?s discussion on the critical role of the mining sector in the country?s industrial growth, it would be interesting to assess the global outlook for 2012 and its impact on India.

China with iron ore production (including concentrates, lumps and pellets) of around 435 million tonnes in 2011 is slated to keep the volume at same level in view of the

anticipated fall in steel output in 2012.

But if environmental regulations lead to curtailment of domestic iron production, imports may rise. During the first 11 months of 2011, China had imported 622 million tonnes of iron ore, which is 11% more than the previous year and comprises around 60% of the total seaborne trade.

The volume of the seaborne trade in iron ore amounting to 1.1 billion tonnes in 2011 can be sustained and even exceeded unless restrained by lower Chinese demand. Top three producers along with others in Australia, Brazil and South Africa would continue to enhance availability which may exceed the fluctuating demand resulting in excess capacity.

This along with current practice of destocking may not allow the prices to rise. Further the present trend of monthly pricing near to the level of spot prices may exert downward pressure on prices to a level of $120-130/tonne.

Indian iron ore market would experience the uncertainty in availability due to unpredictable scenario existing in Karnataka, Goa and Orrisa. The passing of the bills on land acquisition and MMDR with enabling clauses would facilitate flow of fresh investment in the mining sector.

In comparison the coal scenario is going to be tight. Last year seaborne trade in hard coking coal including soft and pulverised coal exceeded 270 million tonnes, out of which India imported nearly 33 million tonnes. This year Indian imports would rise by another 6-7 million tonnes.

China which used to export coal has turned into a net importer of met coal (20% of total trade).

In India, the domestic shortage of thermal coal would lead to high imports of this variety in order to feed the power projects. The production by Coal India is stagnating which is a major cause of concern as the unit enjoys a whopping 80% market share in the country. The captive mines are few and therefore, it is imperative that in 2012, we get the land acquisition and MM&DR bills passed by the parliament so that the new coal mines are allotted and start functioning. The environment norms may also get somewhat relaxed with emphasis on underground mining and setting up of more washeries to bring down the high ash and other impurities.

Global price of met coal at $235/tonne fob may come down by another $20-30/tonne if euro crisis deepens to lead to more closure of steel plants and reduced demand from Japan. Exchange rate appreciation from the current level which is quite likely, would only enable Indian steel majors led by SAIL to add to their ebitda by enjoying some relief in cost of raw materials.

n The author is DG, Institute of Steel Growth and Development. The views expressed are personal