What the Future Holds for Indian Iron Ore Mining – Part Six

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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.

Previous posts in this series: Part 1, Part 2, Part 3, Part 4, Part 5

To overcome the current situation, steel plants depending on Bellary ore mines are now considering getting ores from other states such as Orissa. However, the landing prices in Orissa are more than INR 9,000 per ton, two times more than that in Karnataka. This will in turn lead to production cost increases of more than 25 percent, roughly INR 2,000 per ton.

So, the Bellary mines ban will either force steel plants to temporarily shut down or run at reduced utilization rates, as they can’t use the low-grade ore from Goa. Bringing in the required quantities from Jharkhand and Chhattisgarh will lead to increases in cost structures, as the high transport costs make that commercially unfeasible in the current climate of weak steel demand.

If the ban continues longer, mining activities may come to halt for the moment. This may force miners to form alliances with steel mills for setting up processing plants for converting low-grade iron ore into lumps.

The mining giants Rio Tinto, BHP Billiton and Vale are looking to utilize this opportunity to strengthen the iron ore export industry, which is expected to boom for the next five to ten years.

The steelmaking cost for Karnataka’s steel mills such as JSW Steel, on the other hand, has increased by more than US $30 per ton during the last quarter (July-September 2011) and the cost is expected to rise in the coming months if the ban continues.

The Indian government has to establish a technically competent and independent regulator for drawing up the necessary regulations and enforcing them strictly, which will de-politicize the sector and minimize violations of environment laws and rights of the tribal people.

The government also has to ensure that its policy framework attracts large, organized, technologically well-equipped and socially and environmentally conscious mining companies. If the government fails in bringing up a new, attractive and viable policy immediately, the country may lose its position as the world’s No. 3 iron ore exporter.

–Rahul Jalan

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