Indian Mining Companies Between A Pellet and Hard Place

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India’s iron ore mining companies are caught in the proverbial “when it rains, it pours” situation.

They are being buffeted about from all sides since the last year or so. First, the Supreme Court ruling in the wake of the iron ore mining scam that stopped many companies from extracting the ore, then the Indian government’s decision to twice hike duty rates within a year on iron ore exports, followed by a steady drop in iron ore prices globally, and then, the halt in China’s demand for iron ore.

Suddenly, mining iron ore did not look a lucrative prospect at all.

The only silver lining seems to be the slight rise in India’s domestic need for steel and hence for the raw material to produce it. That’s one of the reasons why miners in India’s largest iron ore exporting state, Odisha, have now decided to get into pellet production from iron ore fines, rather than export the latter.

A report in the Business Standard noted that the state government had received at least 20 proposals to set up iron ore beneficiation plants and pellet units. Domestically, there seems to be an increasing demand for pellets. This is because of the lack of availability of good quality iron ore lumps in the making of steel.

Ironically, the disruption in iron ore supply because of the court halt led to the doubling of the imports of iron ore pellets by May 2012.

Iron ore exports from Odisha have been slipping for nearly the last two years. In 2011-12, they were down by 46 percent, year-on-year. This financial year, analysts fear, it could be worse.

On a pan-India basis, iron ore exports had dropped by as much as 46 percent by the end of the last financial year to 60 million tons as against the previous year’s 98 million tons. The leading reason was the stiff, 30-percent export duty clamped on iron ore exports by the federal government, rendering Indian exports uncompetitive in the global markets.

Continued in Part Two.

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