India’s new government immediately has to tackle a crisis brewing in the iron ore sector. Just a few days before the new government took its oath of office, India’s Supreme Court ordered almost half of the iron ore mines in India’s top producing province, Odisha, shut down because of the local government’s failure to renew decades-old mine leases.
The ban has dealt a body blow to expectations of the iron ore industry worldwide, and particularly of the belief that India would retake its position as a leading ore exporter.
Odisha produced more than 70 million tons of ore in the last fiscal year from 56 operating mines. Now, the ruling court has shut down 26 of them. Which translates into about a cut of about 40 million tons.
Analysts said the move puts a hurdle in the plan of new Indian Prime Minister Narendra Modi, who has often said he would like the country to export steel and not iron ore.
The ruling has sent all those connected with the sector into a tizzy. The verdict will force Indian steelmakers to cut output or import expensive iron ore. Among the companies that rely on ore from Odisha are Tata Steel Ltd. and Jindal Steel and Power Ltd. Most of the mining in Odisha is done by state-owned Odisha Mining Corp. Jindal has already purchased about 12,000 tons of low-quality iron ore from Goa, according to available government data, a first in years. Many sponge iron plants in neighboring State of Jharkhand, too, are dependent on Odisha ore.
How the Goa Ban Affects Odisha
Goa, which ranks high among the iron ore producing states, has traditionally exported most of its iron ore to China since Indian steel mills prefer higher-quality ore.
The high court had earlier imposed mining bans in Karnataka and Goa to halt irregularities. MetalMiner had reported in April how the Goa ban, imposed in September 2012, had been lifted, but with an annual cap of 20 million tons. With a fresh ban in Odisha, supply is under further pressure. The move is unlikely to lift global iron ore prices given the limited flows from Odisha.
The Odisha state government is now working overtime to renew the licenses of the affected mines within the court’s stipulated six-month period. It has assured miners that within the next two months, it would be able to renew licenses of 10 of the 26 mines that were ordered shut by the Supreme Court. Because of all the earlier bans, India has already slipped to tenth on the list of leading global iron ore exporters from its previous number three position.
A few days ago, industry lobbying group the Associated Chambers of Commerce and Industry of India (ASSOCHAM) dashed off a letter to the Finance Ministry asking it to consider ordering the government-owned National Mineral Development Corporation (NMDC) to stop exporting iron ore to Japan and Korea. As per an earlier contract, NMDC exports about 2.5 million tons to these two nations. When the domestic Indian steel industry is struggling to meet its requirement for iron ore, exporting of the precious raw material should be halted.
Sohrab Darabshaw contributes an Indian perspective on industrial metals markets to MetalMiner.