Iron Ore Ban in India: Like an Own Goal For Steel Companies

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India’s ambitious program of producing 300 million tons of steel by 2025 has come up against the biggest hurdle of ’em all – lack of iron ore supply.

It’s something like an ‘own goal’, one would say – scoring a goal on your own team. The legal ban on iron ore mining imposed by India’s Supreme Court, although justified, means ever-dwindling ore supply.

Now, India’s Steel Ministry has said the country will have no choice but to import iron ore in the immediate future to meet the domestic demands of local steelmakers.

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Analysts say this is quite a comedown from what India was a couple of years ago. Writing in MoneyLife, A. K. Ramdas, a member of the Engineering Export Promotion Council of the Ministry of Commerce, says considering that India was an exporter of iron ore in 2011-12, which is not too long ago, fetching about $7 billion, this is quite a comedown.

Another report, this time in Business Standard, states that the Steel Ministry had put up a note to India’s Planning Commission saying with many steel projects in the pipeline, iron ore requirement will increase significantly, leading to imports of iron ore in the near future. The note is part of the Ministry’s mandatory mid-year plan review.

India’s current production capacity of around 90 million tons (MT) per year means it still requires at least 140 million tons of ore to meet its need. Approximately, 1.6 million tons of iron ore are required to manufacture one million tons of steel. We at MetalMiner have been consistently following up the iron ore shortage story. Iron ore production has fallen from 213 MT in 2008-09 to 136 MT 2012-13.

Iron Ore Demand by the Numbers

Just to understand the nature of the beast, demand for iron ore in India has gone up to almost 125 MT in 2012-13 from about 88 MT in 2008-09 – that’s the pace at which the steel sector is burning up ore for production. India is the world’s fourth-largest producer of steel after China, Japan and the US.

The Steel Ministry’s figures reveal that production has definitely slowed down because of lack of ore. In the January-October period of 2013, India managed to produce just about 67 MT of steel.

OUTLOOK: Where are steel prices headed? Read MetalMiner’s latest analysis.

Hopefully, by next year, the iron ore production scene may see some respite because of the Supreme Court partially lifting the ban on iron ore mining in the southern State of Karnataka.

The court had allowed ‘A’ category mines to commence operations, but these do not make up the majority number. ‘B’-class mines with minor offenses have also been allowed to start work while ‘C’-class mines remain on the banned list.

Work in some of the Karnataka mines has started, and hopefully mines in some other states, too, will join this effort to step up ore production. For example, mining in India’s tourist state of Goa is at a standstill, but a 6-member expert committee is looking into how to resolve the situation. It is expected to give its report by February next year to the Supreme Court, and experts are hopeful of some positive outcome out of that.

Look for Stuart Burns’ detailed iron ore price outlook tomorrow.

In the meantime: FREE Download: The Monthly MMI® Report – covering the Steel/Iron Ore markets.

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