Ban Lifted, Indian Steel Companies Want Domestic Iron Ore Faster

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Iron ore imports to India have surged in the first 7 months of the current fiscal year here.

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As such, India’s iron ore shortage continues to throw the nations import-export business out of sync. Ore imports witnessed a record surge during the April-October 2014 period, touching 5 million tons, as India’s steel mills brought in the crucial raw material from abroad to meet a domestic shortfall.

While the bureaucratic wheels of the government turn ever so slowly to restart iron ore mining in various provinces, brought to a halt after a legal ruling that was subsequently lifted. Steel makers, meanwhile, have no choice but to import the ore until the supply chain achieves a level of normalcy. Mining restrictions and falling global prices led to the increase in imports in the 7-month period of this fiscal. For October alone, imports had topped 2 million tons, according to industry consultant SteelMint.

We at MetalMiner have often underlined the irony of the situation. India was once the number 3 supplier of ore in the world, and continues to sit on vast reserves of ore. Yet, it is now one of the world’s largest importers.

A report by news agency Reuters said the increase in Indian imports should absorb some of the global surplus of iron ore and help stabilize prices, which otherwise have come down because of China’s slowing demand.

The shortage is being felt, one way or the other, in India’s gigantic steel sector. For example, the sponge iron and pellet manufacturers in the eastern province of Odisha are said to be facing a massive shortage of iron ore fines, because their mining leases have not been renewed.

In the first 7 months of this financial year, iron ore fines supply totaled just 8.7 million tons, compared with 15.1 million tons of the same period a year earlier. A report in The Economic Times said the shortage had left companies such as Essar Steel and Jindal Steel & Power struggling as their capacity utilization had shrunk to less than 40%.

Non-renewal of mining leases put a strain on the user industry as the companies were starving for raw material.

The report even goes on to say that unless the leases are renewed quickly, the continued shortage and underutilization of capacity could pose a threat to the finances of these sponge iron and pellet companies, putting their total investments worth billions of dollars at risk.

Miners and steel companies are worried. For example, Vedanta Group chief Anil Agarwal tweeted last week asking the government to hurry up with the clearances for reopening iron ore mines in Goa. Goa’s mining companies handle 50% of India’s iron ore exports. Agarwal also asked the government to abolish the existing export duty on iron ore.

Agarwal has made his stand on ore exports from India clear even on earlier occasions. He has often said it was ironic for India to be producing only 100 million tons a year even though it had the ability to produce 600 mt a year of quality iron ore.

Agarwal’s angst is understandable for the Vedanta Group company Sesa Sterlite, one of the largest ore mining companies in India based in Goa, was doing rather well on the export front before mining was banned 2 years ago.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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