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Tough times for India’s iron ore miners

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There is a dark cloud on the horizon for the Indian iron ore industry. Iron ore producers are facing a myriad of problems because of government policies restricting exports, and court orders stalling or limiting production in some states. Under a Supreme Court order, iron ore mining in Goa was stopped on March 16, as the local government was found “unduly hasty” in renewing mine leases that were not “in the interest of mineral development” of the state.

The blanket ban on mining in Goa, until the state government is able to grant fresh mining leases in accordance with the Mines & Minerals (Development and Regulation) Act (MMDR), meaning by way of highly time-consuming auction, is a major blow to India’s already diminished iron ore exports.

Iron ore found in Goa has iron content of 58% or less, for which there is no local demand. Taking account of the reality that the survival of the industry depends on its ability to sell the low-grade mineral on the world market, particularly to China, New Delhi in February 2016 removed the 10% export duty on iron ore fines with iron content of less than 58%. More significantly, exports of lump ore bearing iron of less than 58% were also spared the duty of 30%. The much-demanded concession gave a breather to the state’s iron ore mines.

But as Goa’s iron ore mines ramped up production, a court ruling put fetters on the Goan industry by limiting annual production to 20 million tonnes to alleviate previously identified concerns about damage to the environment. With severe restrictions placed on the production of iron ore in Goa, a market that had traditionally been Goa’s was scooped up by others. Nevertheless, leading miners in Goa, such as Vedanta, Chowgule and VM Salgaocar, went enthusiastically about the job of retrieving the ground they had lost in China and elsewhere as far as possible. The recent court order cancelling all operating leases in Goa came as the miners were once again meeting with export success.

Before the cancellation of leases in March 2018, a court-appointed expert committee tasked with making a “macro environmental- impact assessment study” relating to annual ore extraction in Goa found the state to be ready to support over 30 million tonnes per year of production. According to the Goa department of mines and geology, between August 2015 and mining discontinuance in mid-March this year, the state’s production was only 37.11 million tonnes. Prior to 2012, Goa had annually exported around 50 million tonnes of ore. In its most productive times, Goa alone would account for half of India’s iron ore exports.

The only relief for the state’s miners regarding the recent ruling has been the court allowing the export of iron ore that was mined before March 16 on which royalties have been paid, subject to confirmation by the state government. Soon after the cancellation of leases, London-listed Vedanta Resources said it would likely record an impairment charge of up to $600 million. As the mines remain shut, the coastal state is facing an “economic and social disaster”, according to the Goa Mineral Ore Exporters Association. Direct and indirect job losses are an estimated 65,000. A few thousand trucks, earlier engaged in ferrying iron ore from mines to jetties, remain idle. Even at a highly truncated level of operation, Goa’s mining industry had a share of around 12% of state gross domestic product. Iron ore mining and tourism are the backbone of the state’s economy.

“The cancellation came out of the blue coinciding with our attempts to regain the market we lost to competition. China, which has excellent beneficiation and agglomeration facilities, has been the mainstay for our exports. The import focus of China is, however, moving towards better grades of ore to cut greenhouse gas emissions and improve mill productivity, and that started working to our disadvantage. In any case, Goa will have nothing to export till auctions are held, new leases are granted, a host of clearances obtained and mining starts,” said an industry official.

According to PK Mukherjee, a former managing director of Sesa Goa, a company since acquired by Vedanta, once the state government has issued the letter of intent to the highest bidder for a mineral block, the winner will have to secure as many as 13 different clearances plus the approval of a village-level conclave. So the time frame for Goa to return to production remains highly uncertain. 

Karnataka restrictions too

Private-sector iron ore producers in Karnataka that were found to be indulging in mining to “make maximum profits within the shortest possible time,” leading to “environmental and ecological” disturbances, led the Supreme Court to put a ban on mining in the southern state in July 2011. The ban was selectively lifted in April 2013, but with a 30 million tonne per year production cap. Subsequently, in December 2017, based on an expert committee recommendation that the state’s ore handling capacity had significantly improved since 2011, the court raised the production ceiling to 35 million tonnes per year.

Unlike in Goa, where ore extraction is destined for exports, steel mills in Karnataka prefer using locally produced iron ore to spare them the cost of hauling the material from the distant eastern states.

According to JSW Steel vice-president (mines) BP Pandey, compared with the total annual requirement of 42.60 million tonnes of iron ore by steel and sponge iron plants in Karnataka and its adjacent regions, the state’s production in 2016-17 was 27.89 million tonnes. As iron ore production in Karnataka since the court intervention is falling short of local requirements, steelmakers are left with no option but to procure some of their requirements from distant Orissa and also from abroad.

The ambitious capacity expansion programme of JSW Steel’s 12 million tonne per year Vijaynagar complex in Karnataka took a knock because of iron ore supply uncertainty. Short of ore, some mills remained shut for some time. While the ore production cap is causing pain to steelmakers in and around Karnataka, a court-ordered blanket ban on exports from the state continues, causing problems for all agencies involved in selling the mineral in the world market.

In better times for production before court intervention, Karnataka had produced over 60 million tonnes of ore, of which as much as 47 million tonnes were exported in 2009-10. According to the Indian Bureau of Mines, Karnataka has iron ore resources of 2.269 billion tonnes and Goa 1.019 billion tonnes.

Orissa’s stock problems

Former president of the Federation of Indian Mineral Industries (FIMI), HC Daga said: “Iron ore mines in Orissa too suffered the ordeal of production suspension because of court intervention. Back in production, they now have to contend with insufficient availability of railway wagons for making delivery of ore to steel mills and to ports for exports. As a result, the state saw ore stocks at mine heads rising to around 100 million tonnes, mostly constituting fines. The stocks are of alarming proportions disturbing the environment.”

Daga says that pithead stocks are rising because: “We are getting only around 28 rakes of 58 wagons each a day, against our minimum daily requirement of 60 rakes.” According to the MMDR Act, the tenure of privately owned mining leases, except for the ones marked for captive use by steel companies, will expire in 2020 March end. Then these mines will once again be put up for auction. It is, therefore, only natural that the leaseholders will try to extract the maximum from the mines before the lease tenure ends. But rake shortages crimping their capacity to despatch the material they are extracting from mines are seeing pithead stocks grow bigger by the day. A railway ministry official said that iron ore miners are experiencing rake shortages because of the decision to move greater quantities of coal to thermal power stations during the summer.

FIMI director general RK Sharma has another view on why the eastern states of Orissa and Jharkhand have over 85% of the country’s pithead iron ore stocks of over 160 million tonnes. Sharma said: “Iron ore fines with iron of up to 62%, for which there is hardly any local demand, constitute nearly 95% of the stockpile in the two states. The problem of mounting ore stocks will stay with us till the government extends the duty-free exports now available to iron ore of up to 58% iron to up to 62%.”

Local value addition

India’s steel secretary, Aruna Sharma, believes that there is considerable scope for local value addition to iron ore fines lying at mine sites by way of agglomeration for conversion into sinter and pellet. Her immediate task, therefore, is to create conditions that will give a major boost to the nearly 90 million tonne per year pellet industry’s capacity use, which is now only around 35%. At the same time, pellet makers will have to give up the practice of restricting their use of ore with iron content of over 62%.

Miners contend that India’s iron ore resources, now estimated at 31.32 billion tonnes, will get greatly enhanced if thrust is given to greater levels of exploration. But exploration should not be left to government agencies only. Though late, the National Mineral Exploration Policy 2016 has allowed the private sector to be involved in exploration work. Domestic and foreign agencies are not enthused to bid for exploration work as the rewards promised in the policy are found to be inadequate.

FIMI says that, even at the current resources level, there is room for a more liberal approach to iron ore exports. But a duty of 30% on ore with iron content of 58% and more, mining restrictions on Goa and Karnataka, and poor transport logistics, restricted Indian exports to 40 million tonnes in 2017-18, compared with the record 117 million tonnes in 2009-10.

In order to keep iron ore prices low, the powerful steel lobby goes on pleading with the government to enforce a highly restrictive ore export policy. Aruna Sharma has, therefore, the difficult task of finding a middle policy ground after considering the conflicting viewpoints of mining and steelmaking groups.

In the meantime, her incentives for the construction of slurry pipelines between mines and pellet making units, which will significantly reduce carbon emissions involved in ore transportation by road and rail, has been much appreciated by environmentalists. The move will also help in decongesting transportation infrastructure in mining areas.

Another major challenge for India’s steel secretary is to create a policy environment that will lead to the creation of additional mining capacity at a fast pace. Against the 2017-18 production of 210 million tonnes, the national steel policy anticipates that domestic iron ore demand will jump to 437 million tonnes by 2030-31. There will also be exports, mostly of fines. To meet the combined domestic and export demand, the government “will have to quickly identify deposits for auctions and also speed up the process of giving all the sanctions needed for starting iron ore excavation,” says Daga.

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