How Karnataka's Ban On Illegal Iron Ore Mining Affects the Global Steel Industry – Part One

MetalMiner welcomes guest contributor Rahul Jalan, a Chennai-based senior research analyst in metals for Beroe, Inc. who tracks the global steel and rare earths supply chain and analyzes global procurement developments to help develop procurement solutions for the company. Beroe specializes in providing procurement intelligence for a broad swath of industries, enabling buyers’ decision-making.

India’s steel industry has been facing major obstacles for last few months due to the iron ore-mining ban in the state of Karnataka. The Indian government successfully cracked down on illegal mining, which caused severe damage to the environment. However, the government has not ensured iron ore availability to many steel mills in India, which were totally dependent on the recently banned mines. The Indian government aims to move the mining industry into a more organized sector so that mining is carried out in a legal, scientific and environment-friendly manner.

The Indian central government has set up different committees to probe illegal iron ore-mining in the Goa, Karnataka, Orissa and Jharkhand states. The report containing recommendations on the ways to organize the sector in Goa is likely to be submitted by Nov. 11, 2011. Similarly, other state governments are also asked to access the damage caused to the environment and life span left for each mine, while keeping in mind future requirements and challenges so that all the factors can be formulated while implementing a new steel policy.

India’s Second-Largest Iron Ore Cluster

Karnataka (located in southern India) is the country’s second-largest producer of iron ore, producing about 45 million tons annually, accounting for 24 percent of India’s overall iron ore output. The state produces iron ore in the form of 70% fines and 30% lumps.

Karnataka has 134 mining leases granted in the state over the last decade, of which nearly half were given in the last three years alone. The rate of extraction of iron ore in the Bellary-Hospet region exceeded stipulations in the mining permit, breaching the license laws. The probing committee has also reported that only 20 mines in Karnataka are left with a life of two decades or more, leaving the domestic steel market in a danger zone.

Karnataka supplies iron ore to several large steel plants such as JSW Steels, Kirloskar Ferrous, and Kalyani Steels, and also to small- and medium-sized sponge iron units in Andhra Pradesh Gujarat, Maharashtra, and Tamil Nadu. It also exports major volumes of iron ore fines to China and lumps to countries such as Japan.

The Bellary-Hospet region, Tumkur and Chitradurga districts of Karnataka account for more than 90 percent of the state’s total iron ore but production has been completely shut since August 2011 after the Supreme Court of India levied a temporary mining ban until the probe is complete and a new regulation is designed.

Check back in for a timeline of the legislative activity around Karnataka’s illegal-mining ban, as well as more analysis, in Part 2 tomorrow.

–Rahul Jalan