In a first, cos start importing iron ore due to mining ban

Written by Rishi Raj | Raj Kumar Ray | New Delhi | Updated: Nov 26 2012, 08:01am hrs
This might have looked improbable until a couple of years ago, but recent curbs on mining of iron ore in regions rich in this natural resource have prompted Indian firms to import this key input for the steel industry.

The countrys largest iron ore exporter, the Goa-based Sesa Goa, which has a pig iron plant in the state, has already finalised an order to import 80,000 tonnes of iron ore, a company official told FE. Essar Steel officials confirmed that the company has recently imported half a million tonnes of ore for its steel plant located in Gujarat. Sources said that the countrys largest private sector steel producer JSW Steel could also soon join the ranks of Indian iron ore importers.

No doubt the ban on mining in iron ore-rich states like Karnataka, Goa and Orissa is having an adverse impact on the domestic steel industry, one among the low-cost producers of the metal in the world and growing at a faster rate than steel industries in most parts of the world. Industry analysts estimate that India would need to import 20-30 million tonnes of iron ore next fiscal to meet demand from domestic steel producers.

The shortage of the raw material is one of the problems being faced by steel producers. The other is the huge pricing power state-owned National Mineral Development Corporation (NMDC) commands in the market.

Private steel producers buy the bulk of their iron ore requirement from NMDC and allege that it is now charging prices higher than what is ruling in the international market.

Essar Steel officials said that they were forced to import iron ore because of the high prices being charged by NMDC. Since our plant is on the coastal region, it is cheaper for us to import iron ore than to buy at higher prices from NMDC, said an official. Officials at JSW said that shortage of iron ore in the domestic market is also leading to a surge in steel imports, which has risen 35% in the first six months of the current fiscal.

NMDC officials said that prices for iron ore are fixed through e-auction so they cannot be blamed for charging higher prices. The company is also facing problems in immediately increasing production. Though the Supreme Court has allowed it to increase production from yearly 6 million tonnes (mt) in Karnataka to 12 mt, the company has not been able to increase it so far.

During 2009-10 the country produced 219 mt of iron ore when production was not affected by bans. During 2011-12 production went down to 170 mt. The domestic steel industry sources its iron ore requirements chiefly from Karnataka and Orissa while Goa, which produces around 45 mt annually, exports the bulk of it.

Of the 170 mt produced in 2011-12, 60 mt was exported, leaving the balance 110 mt for domestic consumption. But of this, 50 mt is the captive production by Steel Authority of India and Tata Steel the only two steel producers that have captive mines and who meet their total requirement from their captive mines. Thus, 60 mt of iron ore is left for steel producers who do not have captive mines.

With the Orissa government also taking banning mining because of the ongoing probe into illegal iron ore mining by the Justice Shah commission, the states total output of 67 MT would be hit. Of this, 35 MT is used up by the domestic market, which would cause a huge crunch for local steel producers like JSW, Essar Steel, Sesa Goas pig iron plant and a host of other small steel producers, say industry officials.