With Iron Ore Prices Still Falling, Vedanta Reopens India’s Mines

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It’s been a wait of about 3 years but Vedanta’s iron ore operation in the Indian province of Goa is finally set to resume exports, mainly to China. After the monsoon ends, other miners, too, are all set to restart mining.

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Representatives of steel manufacturing mills from China’s Jiangsu province and Tangshan area recently visited Goa to discuss the modalities with officials of Sesa Iron Ore, a subsidiary of Vedanta.  Sesa Iron Ore announced the resumption of iron ore extraction at its mine in Codli, 80 kilometers south of Panaji, Goa’s Capital, and once Asia’s biggest iron ore mining site.

Resumption of Ore Extraction

The current environment clearance limit for the mine is around 3 million metric tons a year, scaled down from earlier limit of 7 million metric tons. Before the mining halt, China was the biggest market for Goa’s iron ore. The extraction activity in Goa was stopped after the state government suspended mining leases due to illegal activities. Later, the Supreme Court of India banned it until April 2014. Recently, the Goa government renewed many of the leases, paving the way for resumption of iron ore extraction.

While the Chinese may be back, in Goa at least, and with more capacity added to the overall iron ore stock, the larger question being debated by iron ore analysts and mining companies in India and around the world is – will there be a revival in Chinese demand for ore? Are they back?

What About the Majors?

Mining major Rio Tinto, for example, recently reiterated its claim that Chinese steel production would reach 1 billion tons, soon, and also forecast renewed demand for iron ore and steel from other emerging markets in the next 15 years.

Rio may still have faith in the China growth story but competitors such as BHP Billiton and Fortescue Metals Group think otherwise. A few days ago, BHP said it had lowered its expectations of Chinese steel production.

Like Vedanta’s Goa mines, a few others around the world are preparing to add to the ore supply. India’s Essar Steel, for example, is hurrying up construction in Hibbing, Minn., of a $1.9 billion mining and processing facility.

But what effect will the increase in ore supply have on the already spiraling iron ore prices, globally?

Earlier this year, iron ore prices fell to historic lows. Overall, ore prices have plummeted around 70% since hitting a peak in 2013, hurting big exporters such as Australia. A majority of analysts are of the view that the iron ore mining sector is unlikely to recover anytime soon, especially since the Chinese economy shows no major signs of recovery.

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There’s been a brief rally in iron ore prices sending hopes soaring in some quarters. In the last days of August, Standard & Poor’s revised upward its price “assumption” for the year to $50 from the earlier forecast of US $45 per mt, but added that the imbalance in supply and demand would remain for another two years. Others expect prices to slide later this year and the next, and probably it would stabilize at $50 a year.

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