The Indian mining sector is a casualty of lack of a national mining policy and guidelines, which has prohibited a unified extraction, development, pricing and selling of the product in the domestic and export market across the producing states.
The surfacing of the facts on illegal mining and the latest Supreme Court ruling for mills at Karnataka are more examples of procrastination in framing policy statements for a sector where government presence is only 20% of the total production.
The annual average growth of the sector contributing for more than 14% to industrial production was fluctuating. It was 2.3% in 2005-06, 4.2% in 2007-08 before rising to 7.9% in 2009-10 and falling again to 5.2% last year and clocking a dismal rate of 1.3% in the first two months of the current year.
While the recent events bear testimony to the latest performance of the sector, the embargo on movement of raw materials outside the state for value addition has added to the steep rise in prices of iron ore.
Even after adding revised royalty rates and other levies, the selling price is too high to make mining operations extremely profitable at least for iron ore. One comparison is relevant. In Q1 of 2011-12, NMDC has earned a net profit of more than 20% (R180.1 crores) compared to last year?s level. In the same period (Q2 of 2011), Vale of Brazil has made a 74% growth in net profit (R28,510 crores) with highest ever EBITDA (earnings before interest, tax, depreciation and amortisation) and revenues from iron ore operation yielding 78% of total revenue including those from nickel and copper where prices have fallen.
Thus buoyant demand for the material has enabled the producers to charge high prices and earn net realisation which exceed the last year?s level by at least 15-20%. As Chinese demand for steel is still growing, the demand for raw materials would continue to sustain in the global market.
India having banned the production from a number of mines, at least temporarily and for adequately justified reasons, with no immediate enhanced availability either from NMDC or other private mines, may have to import iron ore as exportable fines can be used only after beneficiation.
If the situation so arises, the steel industry must also rue for the inactivity on their part in setting up facilities for utilisation of fines. In addition, like Vale, the iron ore miners in the country must invest surplus cash on mechanised mining, beneficiation and sintering facilities to enable more value addition within the country.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal