Industry News

The US car industry has certainly bounced back.

Washed clean of massive debts and supported by some $60 billion of government money, two of the Big Three have successfully reorganized themselves into a very different industry from the last decade. More fleet of foot, Ford managed it, just on their own.

Whether for reasons to ensure the industry’s long-term prosperity or to reduce the country’s balance of payments, the government is now imposing tough fuel efficiency standards. By 2025 US car-makers will have to get 54.5 miles per gallon, on average, from their fleets, about twice the current level. As the Economist points out, if tougher standards had been set back in the 90s, arguably the Big Three would have been better able to cope with a competitive range of vehicles in the early part of this century; but that rather overlooks the host of other problems GM, Chrysler and (to a lesser extent) Ford were carrying into 2008.

The EPA champions the tougher standards, and it says, “Together, they will save American families $1.7 trillion dollars in fuel costs, and by 2025 result in an average fuel savings of over $8,000 per vehicle. Additionally, these programs will dramatically cut the oil we consume, saving a total of 12 billion barrels of oil, and by 2025 reduce oil consumption by 2.2 millions barrels a day”as much as half of the oil we import from OPEC every day. The standards also curb carbon pollution, cutting more than 6 billion metric tons of greenhouse gas over the life of the program”more than the amount of carbon dioxide emitted by the United States last year.

All this may sound like meddlesome big government, but if there is one thing the Big Three proved, you cannot trust them to make the long-term strategic decisions necessary for their own survival. They are driven too much by this year’s car sales and the next facelift.

Globally the car industry is facing massive over-capacity. The car industry can produce 94 million cars a year, against global demand of 64 million, according to another Economist article. As the article points out, annual sales growth in China is forecast to fall from 30 percent to around 10 percent from this year as other parts of the country follow Beijing’s move to restrict the number of cars in the city. That will both squeeze Western firms selling into China, but in the medium term it will encourage Chinese manufacturers to look abroad for sales growth. Globally the whole industry needs to rationalize, but with employment and automotive production so closely linked in Europe, it is unlikely much of a dent will be made in the estimated 30 percent over-capacity in that market.

The UAW, bargaining with the Big Three this month, is therefore going to be more about keeping jobs and finding common ground than the confrontation of old. All in labor costs have fallen from $76/hr to something above $50/hr as part of the agreement reached when GM and Chrysler went into Chapter 11. All three firms are now making money before exceptional items, all the more remarkable when you consider the US will buy only some 13 million cars this year against a peak of over 17 million just a few years ago, as this graph produced from data provided by WardsAuto.com shows.

Graph: MetalMiner. Data: WardsAuto.com

The trend to make fewer cars and to make smaller cars (by extension, more fuel-efficient cars tend to be somewhat smaller) has led to reduced demand for steel and other metals, which is unlikely to come roaring back as the trend to weight saving continues.

But alongside that has been a marked increase in the use of alternative materials, aluminum being a major beneficiary. This will likely accelerate if European experience is anything to go by. Europe trails the US in so many ways, but in automotive design many of today’s trends in the US were started five or ten years ago in Europe or Japan. There, as more recently in the US, government mandate has increasingly set the longer-term agenda for the car industry. Let’s hope they have got enough right to ensure the long-term survival of our major players on both sides of the pond.

–Stuart Burns

TC Malhotra contributes to MetalMiner from New Delhi.

In an attempt to secure mining leases, Indian mining companies such as NMDC, MOIL and Sesa Goa plan to foray into metal and alloy production.

According to a Business Line report, mineral-rich states like Karnataka and Chhattisgarh are looking at value addition as a pre-condition for granting new mining leases and renewing existing ones.

The report states that the National Mineral Development Corporation (NMDC) has plans to invest Rs 150 billion ($33.3 million) to set up a 3-million-tons-per-year unit at Nagarnar in Chhattisgarh State.

NMDC is India’s largest iron ore producer and exporter, producing about 30 million tons of iron ore from three fully mechanized mines in Chhattisgarh and Karnataka states. It also operates the only mechanized diamond mine in the country at Panna in Madhya Pradesh state.

Manganese (Ore) India Limited (MOIL) has also decided to set up two ferro-alloy units through joint ventures with Steel Authority of India (SAIL) and Rashtriya Ispat Nigam Limited (RINL). The proposed ferro-alloy plant with SAIL in Chhattisgarh will have a capacity of 106,000 tons, while the one with RINL in Andhra Pradesh State will produce 57,500 tons. MOIL is India’s largest producer of manganese ore by volume.

Sesa Goa, which operates major mines in Karnataka, has also acquired the assets of Bellary Steel and Alloys Ltd (BSAL) in Bellary for Rs 2.20 billion ($48.8 million). BSAL was building a half-million-ton/year unit and has 700 acres of land in Bellary. Sesa Goa is India’s largest private-sector producer and exporter of iron ore.

Under the new mining policy, Chhattisgarh state decided there would have to be a greater value addition by the mining companies that hold leases for mines estimated to have 65 percent of the iron ore deposits in the state.

About 20 percent of India’s iron ore reserves are found in Chhattisgarh, mainly in the hilly pockets of Bastar region.

Chhattisgarh also has vast reserves of coal, iron ore, bauxite, dolomite, limestone, quartzite, and diamond.

In December 2008, the Karnataka state government unveiled its new mining policy aimed at banning iron ore exports and encourage value addition of the product.

While announcing the new mining policy, the state government said that issuance of any new licenses will be “pre-conditioned to value addition in the state without destabilizing the state’s forest wealth and bio-diversity.

One of the highlights of the new policy is that no new licenses would be granted to export minerals without value-add. Furthermore, there would be no renewal of existing licenses for exports, but those who have valid export permits can continue exporting.

The new policy has 13 objectives, including progressive features such as adoption of modern techniques in mining, transparency in granting mineral licenses and emphasis on value addition.

The government will give priority to the applicants that propose establishment of industries for value addition within the vicinity of the mineral-bearing areas, the policy said.

–TC Malhotra

Last week, the US Department of State published a statement on Section 1502 of the Dodd-Frank legislation regarding conflict minerals traceability and due diligence. Specifically, the statement urges companies to “begin now to perform meaningful due diligence with respect to conflict minerals. In addition, the State Department endorsed the guidance issued by the Organization for Economic Co-Operation and Development (OECD) that contains a five-step framework companies will need to consider. This framework includes the following:

  1. Establish strong company management systems
  2. Identify and assess risk in the supply chain;
  3. Design and implement a strategy to respond to identified risks;
  4. Carry out independent third-party audit of supply chain due diligence at identified points in the supply chain; and
  5. Report on supply chain due diligence.

OECD Guidance

Readers can download the OECD guidance here.

The State Department statement also specifically mentions that companies can rely on the “documented representations of suppliers further upstream so long as the company had taken care in implementing the five-step framework. Finally, the statement also gives a nod of acceptance to the use of industry-wide initiatives to “effectively discharge the due diligence recommendations contained in the guidance.

What we find of particular interest, however, involves the fact that the Department of State released the statement, but the government agency primarily responsible for the development of the regulations (as well as the enforcement) is the SEC (Securities and Exchange Commission).

We turned to our resident conflict minerals expert, Lawrence Heim of The Elm Consulting Group International for his thoughts on the significance of the statement from the State Department and the potential impact on the rules eventually promulgated by SEC. According to Heim, the law mandates that State work with the SEC.

However, Heim said, “Just because the State Department puts forth this statement, does it mean that SEC is painted into a corner? In short, he says no, the SEC can choose to take a different approach, but the reality is that so much momentum and political pressure from NGOs (non-governmental organizations) around the OECD document might make it difficult for the SEC to withstand the pressure. “At the same time, Heim continued, “the SEC will have to look at the OECD document and identify potential areas of conflict with existing SEC audit/auditor standards.

Regardless of the text on the final rules, Heim probably has it right when he says, “Companies should no longer be in a ‘wait and see’ mode. Basic planning, assessment and program development can and should begin now. If nothing more, companies should evaluate whether the OECD Guidance is the appropriate reference point. As we pointed out in an earlier post, that guidance contains a number of pitfalls and auditor impairments that may deter its use by many companies.

MetalMiner will continue to update readers on the development of the conflict minerals rules as per the SEC.

For more background on the legislation, click here to register and download a MetalMiner legislative guide.

–Lisa Reisman

TC Malhotra contributes to MetalMiner from New Delhi.

The Society of Indian Automobile Manufacturers (SIAM), the auto industry body representing 46 leading vehicle and vehicular engine manufacturers in India, forecast that Indian car sales, which grew at about 30 percent in the fiscal year up through April 2011, are now expected to grow by just 10-12 percent in 2012.

The revised forecast by SIAM is down from an earlier forecast of 16 to 18 percent. According to the latest data made available by the SIAM, they’ve also lowered overall growth for the auto sector to 11-13 percent from an earlier indication of 12-15 percent.

Car sales grew at just 1.6 percent in June ” the slowest since the slowdown of 2008 ” compared with nearly 31 percent in the corresponding month a year before. This has prompted SIAM to lower its growth forecast for passenger cars in 2011-12.

According to a SIAM report, the passenger vehicle segment grew at 8.77 percent during April-June 2011 compared to the same period last year. Passenger cars grew by 7.30 percent, utility vehicles grew by 5.08 percent and vans grew by 29.28 percent in this period. In June 2011, passenger cars and utility vehicles recorded substantially lower growth, 1.62 percent and 4.36 percent, respectively.

Interest rates, higher fuel prices and an increase in vehicle prices are the reasons for the lower growth, according to the auto industry organization.

Auto-grade steelmakers in the country have also started to feel the pinch of dwindling car sales. Market observers say that the demand for auto-grade steel has slowed down since the beginning of the current financial year. They expect the low demand from auto companies to continue for the next quarter or so.

German car manufacturer Audi, in its recently released annual report, has said that there is a bright future ahead for the Indian automobile industry. The report anticipates car demand in India will grow by more than three million by 2014.

India is home to 40 million passenger vehicles as of 2010, and more than 3.7 million automotive vehicles were produced in India that year, making the country the second-fastest growing automobile market in the world.

SIAM had earlier announced that annual car sales are projected to increase up to 5 million vehicles by 2015 and more than 9 million by 2020. By 2050, India is expected to top the world in car volumes with approximately 611 million vehicles on the nation’s roads.

Analysts say that the key to success in the industry is to improve labor productivity, labor flexibility, and capital efficiency. Having quality manpower, infrastructure improvements, and raw material availability also play a major role. Access to the latest and most efficient technology and techniques will bring competitive advantage to the major players.

Tata Motors leads the commercial vehicle segment in India with a market share of about 64 percent. Maruti Suzuki leads the passenger vehicle segment with a market share of 46 percent. Hyundai Motor India and Mahindra and Mahindra are focusing on expanding their footprint in the overseas market. Hero Honda Motors occupies over 41 percent, and shares 26 percent of the two-wheeler market in India with Bajaj Auto.

SIAM is an important channel of communication for the auto industry with the Indian federal government, national and international organizations. The society actively participates in forming rules, regulations and policies related to the industry.

–TC Malhotra

The natural gas market’s underperformance in the investment world hampers its current role as (at least an investment) alternative to crude oil, effectively making the abundant fuel take a backseat.

The biggest hurdles for gas production and consumption to become as ubiquitous as that of oil or at least as profitable were recently outlined by Mickey Fulp, who calls himself the Mercenary Geologist, which I’ll summarize below:

  • Supplies: Abundant. (And often re-exploited on top of existing wells.)
  • Risk/Reward: Natural gas’ development play requires low risk venture capital.
  • Transportation: Natural gas is difficult to transport, needing dedicated pipelines to the wellhead. This infrastructure is sorely lacking.
  • Storage: Difficult. Must be stored in underground caverns in gaseous form; liquid form is better to store, but proper liquefaction facilities are unavailable/inadequate.
  • Processing Capacity: Insufficient in the US.
  • Power Plant Capacity: Most domestic plants are coal-fired; retooling them to use natural gas is burdensome and expensive. Also, even though natural gas burns far less CO2 than coal, its main component methane is a bigger culprit behind greenhouse gas emissions.
  • Environmental Opposition to Drilling, Transportation, Processing, and Storage: Almost self-explanatory.
  • Land Access: “The federal government owns nearly 30% of the country’s land where an estimated 40 percent of potential natural gas resources exist. Adding in federal offshore waters ups this resource figure to almost 60%.

But as demand of natural gas begins increasing, especially in quickly growing economies such as China’s (which my colleague Stuart wrote about in a July 7 post), the price may follow, and if increased prices indicate any sort of sustainable trend, then that will spur investment to build up production infrastructure.

Indeed, here in the US, the fracking process a primary method of extracting natural gas by injecting water and chemicals into the rock that contains it has been under fire for years; but potential production may soon climb astronomically.

Will Natural Gas Prices Grow¦or Not?

Penn State University professors recently released a report stating that production from Pennsylvania’s Marcellus Shale home to the largest gas reserves in the US will yield 3.5 billion cubic feet of gas per day in by the end of 2011. This would be double 2010’s yield.

In 2012, production should reach 6.7 billion cubic feet per day and in 2020, up to 17.5 billion, according to the Penn State report. This year, some 2,300 wells will be drilled (up from 1,405 in 2010), and the professors forecast some 2,500 per year to be drilled by the time 2020 rolls around.

The big win for the industry is New York State’s recent reversal of the ban on the practice. According to Pennsylvania’s Department of Environmental Protection, 24 of the 25 highest-producing wells are in the counties that border New York.

With the US leading the world in natural gas production (nearly 23 billion cubic feet in 2009), these predicted production amounts from the Marcellus not to mention other expanding reserves would considerably add to the global supply. Although the gas price is expected to remain stagnant for the next 25 years (at 0.5 percent annual growth, according to Fulp), if China ups its appetite for the stuff, US natural gas could become a much more crucial global commodity in the decades to come.

With power plants and metal producers both relying on natural gas more and more, it may not be cheap for long.

–Taras Berezowsky

TC Malhotra contributes to MetalMiner from New Delhi.

Unfortunately, illegal mining occurs in many places throughout the world. Various ore-rich states within India participate in Illegal mining activities. The practices have already generated controversy, but the issue of illegal mining in the Bellary-Hospet region in the south Indian state of Karnataka has raised concerns for the domestic steel industry.

According to a report published in an Indian business daily, Business Standard, the Supreme Court-appointed panel called Central Empowered Committee (CEC) submitted its report on July 4, 2011. According to the newspaper report, the CEC has recommended the suspension of mining operations by 21 companies. Last month, the CEC had recommended the closure of mines by six other companies.

However, the CEC has yet to complete its survey of 60 other mines yet it has received an extension by the Supreme Court.

Citing unnamed sources, the newspaper report claims the closure of these mines may result in a shortage of about 5-10 million tons of iron ore for domestic steel mills in south India.

Illegal mining in Karnataka state represents an old problem. However, the issue has taken on new meaning as the matter reached the Supreme Court of India, following a petition by a Karnataka-based non-governmental organization (NGO). The Supreme Court had appointed Central Empowered Committee (CEC) to submit its report on all illegal mining activities in the Karnataka State. Back in April, the Court forbade 19 mines from carrying out mining operations and transportation of iron ore in the Bellary region of Karnataka.

The bench passed the order on the basis of the reports submitted by the CEC alleging large-scale illegal mining activity in the Bellary a mineral rich district, about 300 km from Bangalore bordering Andhra Pradesh state.

Karnataka produces approximately 65 million tons of iron ore each year. According to the The Business Standard article, mines in Karnataka supply iron ore to several large steel plants including JSW, Kirloskar Ferrous, Mukand Ltd and Kalyani Steels. The state also supplies raw material to units located in Maharashtra, Gujarat, Andhra Pradesh, Tamil Nadu state and many small and medium-sized sponge iron units.

Rising iron ore prices helped drive many illegal mining operations in Bellary district, known over the past 100 years for its iron ore reserves. The alleged illicit activity involved mining firms offering minuscule royalty payments to the government. A report by the LokAyukta (an anti-corruption body or ombudsman) has pointed out serious violations and systemic corruption in mining in Bellary, including encroachment of forest land and massive underpayment of royalties to the state.

Iron Ore Shortage

The domestic steel industry faces a 5 m ton annual shortage of iron ore, according to the Business Times. A leading business chamber, ASSOCHAM has asked the Karnataka government to undertake a detailed review of iron ore mining leases and highlight the needs of steel units before the CEC, while framing new rules. ASSOCHAM has advocated that mines and mining activities should shift from a somewhat cottage or unorganized industry to an organized, more professionally operated industry.

–TC Malhotra

TC Malhotra contributes to MetalMiner from New Delhi. This is the second of a two-part series. You can read the first post here.

Meanwhile, India continues to maintain its lead position as the world’s largest producer of direct reduced iron (DRI) or sponge iron during for 2010, a position it has held since 2002. India expanded crude steel production from 51.17 million tons per annum (mtpa) in 2005-06 to 72.96 mtpa in 2009-10. Crude steel production grew at 8.4 per cent annually from 46.46 MT in 2005-06 to 64.88 MT in 2009-10.

Industry analysts anticipate that capacity in the country will likely reach 124MT by 2012.

However, global consultancy firm Ernst & Young in their report, Indian Steel Industry 2010 predicts India will have annual production capacity of only 101 million tons by 2011-12 against the targeted 124 million tons mainly due to regulatory delays and problems in acquiring land.

Over the part four years, two mega steel projects, one each in Jharkhand and Orissa, proposed by Arcelor Mittal and entailing an estimated investment of Rs 1000 billion ($22.2 billion) have seen inordinate delays. Similarly, South Korean steel giant POSCO’s Rs 540 billion ($ 12 billion steel project in Orissa state) also faces delays.

Steel demand will also get a boost from the construction and energy sectors combined with growth in the earthmoving segment, driven by government-backed infrastructure projects. Growth forecasts for the earthmoving segment could reach a CAGR of approximately 18 percent during FY 2011- FY 2014, as per a research report from Putzmeister a machinery equipment manufacturer.

According to the Putzmeister report, the outlook for India’s construction industry remains largely unchanged between the financial years of 2010-11 and 2011-12 and the growth tandem would remain the same until fiscal 2015-16. According to the report, this relatively high growth figure indicates a large number of projects will become available to infrastructure companies throughout the country during the forecasted period. The research sees certain sectors, such as the power and airport sectors, presenting more growth opportunities than others.

The latest statistical data from India’s Ministry of Statistics and Programme Implementation show that the real growth for the Indian construction industry reached 9.6 per cent year-on-year for April-September 2010.

However, the Putzmeister report says that the growth rates forecasted for the construction industry sectors will exceed overall GDP growth. The commercial and industrial construction sectors have seen growth at an annual rate of approximately 10 percent, compared to 6-7 per cent for residential construction.

Although India has experienced a slower growth rate due to the current economic downturn, most pundits expect it to rise again within the next three to four years.

In addition, India has already announced it will provide power to all of its citizens by 2012 under the new National Electricity Policy. To achieve this, India will require a total capacity addition of 100,000 megawatts over the 10th and 11th five-year (2007 2012) plan period. This certainly bodes well for steel.

–TC Malhotra

 

 

Following an article we ran last week on the merger of Steel Business Briefing/The Steel Index (TSI) with Platts, we caught up with Virginia Mainwaring of TSI London to address some points our readers had raised about the merger.

MM: One of the expectations in the market place is that there will be winners and losers from the Platts – SBB merger, indeed if there is not to be some rationalization what is the point of the merger?

VM: This deal is about growth and  increasing the  value provided to the steel industry, not about winners and losers.   The objective is that the whole should be greater than the sum of the parts.  The intention is to integrate Steel Business Briefing (SBB) into Platts, with the benefits that will bring, whilst keeping The Steel Index (TSI) as a separate entity within Platts to continue, and even accelerate, its growth trajectory.

MM: Can you explain for our readers the strategy going forward for the merged business?

VM: This acquisition is about bringing additional value to customers and the marketplace. Platts intends to build upon the success of SBB and TSI, supporting its strategic objective of expanding its presence in the global steel markets. By joining forces, the aim is to offer the market a more expansive product mix that better serves the growing demand for timely, objective information on the steel industry. The work that TSI has done in establishing reliable price indices has met with significant market acceptance. TSI’s indices will continue to be developed using its current methodology and published in TSI’s current publications, independently from Platts price assessments.

MM: Many see this simply as Platts taking a rising competitor out of the way, surely there is an element of that in the merger?

VM: That may be a perception, but the reality is that this is about combining forces to serve the market even better. The union of Platts with SBB will give the market the benefit of a larger, highly experienced editorial team and a far more expansive product mix covering steel and its raw material commodities. TSI will continue to provide its price indices independently, under the TSI brand, as it has done previously.

MM: To what extent is this a reaction to Platts as being light in ferrous metals?

VM: Platts, SBB and TSI provide complementary news and price services aimed at mining companies, steel producers and other organizations in the steel supply chain.  By bringing SBB’s and TSI’s extensive portfolio of of quality news and pricing services together with Platts’ existing resources and products, the objective is to reinforce a strong commitment to steel and its related markets.

MM: How will SBB and Platts journalistic independence be maintained?

VM: SBB and Platts’ journalism/editorial and pricing activities will be integrated, while TSI’s pricing business remains separate. The confidentiality of TSI’s data providers and the price data they submit to TSI remains assured – Platts businesses will have no access to this. In short, TSI’s processes and commitments to its clients are unaffected.

MM: Both Platts and SBB’s subsidiary TSI run steel indexes. We have heard the rapid acceptance of TSI heralds a changing of the order. How do you see the adoption of one or the other price source in the market place?

VM: The market will continue to be offered both TSI’s and Platts’ price indices, allowing participants to use the indices that best serve their purposes. TSI will continue with its own team, totally independently from any of Platts’ journalistic and pricing activities. Platts and TSI indices are compiled using different methodologies; Platts employs a system of telephone polling to arrive at daily market price assessments, whilst TSI collects daily transaction data from hundreds of market participants via a secure on-line system and calculates daily volume-weighted average prices based on this data. The expectation is that both sets of indices will continue to be used in the market place.

–Stuart Burns

TC Malhotra contributes to MetalMiner from New Delhi.

Encouraged by rising steel demand in the domestic market and hopeful of expanding further in the global market, three big Indian steel producers – Tata Steel, Essar Steel Ltd, and NMDC have each announced their development plans.

Tata Steel, one of the world’s most geographically diversified steel producers, will increase production of auto-grade steel by 20 percent to 1.2 million tons this fiscal year. Realizing the potential in the auto segment and rising demand numbers to support that assertion, Tata Steel expects to continue a similar capacity increase in auto steel production over the next few years.

According to the Society of Indian Automobile Manufacturers (SIAM), after posting good volume growth of 30% in 2010, the Indian automobile industry should see see only moderate growth in 2011-12 due to rising interest rates and commodity prices, along with the phased out impact of Ëœlow base effect’. Despite this, the industry expects a growth rate of 15-18% in the coming financial year.

Another private sector player, Essar Steel Processing and Distribution (ESPD), a part of steel major Essar Steel Ltd, announced the commissioning of a service center facility in Dubai. The Dubai facility will serve as the third after those in the UK for the European region and in Indonesia, catering to the East Asian market.

In the meantime, the state owned NMDC, the country’s largest iron ore producer, and Russian steel maker OJSC Severstal will invest Rs 90 billion (approx $ 2 billion) to set up a five-million-ton steel plant in Bellary, in the south Indian state of Karnataka. NMDC has said in an official statement that the plant will have an initial capacity of 2 million tons per annum expandable to 5 mtpa. Construction of the plant scheduled to begin in 2012 will take three years to complete and will spread over 2,800 acres. According to the statement, the two had signed an agreement last December for a 50:50 joint-venture. The joint venture would have its captive coking coal mining subsidiary in Russia and iron-ore mining subsidiary in India to ensure long-term supply of these raw materials.

Severstal will share its latest technology for the proposed plant, with an emphasis on producing superior grade steel used in the automotive sector. Severstal, among the world’s top 10 steel makers, operates steel plants in Russia, the US and Europe.

The Indian steel industry has had tremendous growth in terms of production, capacity utilization, exports, and consumption, which has made India a major steel player. In 2010, India had become the fourth largest producer of crude steel in the world and will likely become the second largest producer of crude steel in the world by 2015.

We will continue this story in a follow-up post.

–TC Malhotra

 

TC Malhotra contributes to MetalMiner from New Delhi.

The rising trend of Naxalites attacks on mining and related activities across Chhattisgarh, Jharkhand and Orissa, which is known as India’s mineral heartland, poses a serious threat to the growth of India’s mining industry.

During the last few years, Naxals and other Maoists have targeted critical infrastructure, transportation, energy, and resource systems in Indian states such as Chhattisgarh, Jharkhand, Orissa, Andhra Pradesh, Maharashtra and West Bengal.

Industry analysts say that rising Naxalites attacks on mining activities are a deliberate attempt to slowdown India’s economy. Available figures suggest that as of 2009, Naxalites were active across approximately 182 districts in ten states of India accounting for about 40% of India’s geographical area. Naxalites are especially concentrated in an area known as the “Red corridor”, where they control some 92,000 square kilometers.

The area affected by Naxalism stretches from the border with Nepal to Karnataka state in the South India. In West Bengal areas west of Howrah are affected by the insurgency. It is believed that Chhattisgarh state is the epicenter of the conflict.

According to India’s intelligence agency, the Research and Analysis Wing, as of 2009, some 20,000 armed cadre Naxalites were operating in addition to 50,000 regular cadres and their growing influence prompted Indian Prime Minister Manmohan Singh to declare them to be the most serious internal threat to India’s national security. With rising naxal attacks, the Indian Central government has announced in February 2009 its plans for broad, coordinated operations in all affected states to plug all possible escape routes.

Naxals and other Maoists target mining operations as and when they get the chance. In April, 2009 Naxalite had attacked the National Aluminum Company’s (Nalco’s) Panchapatmali bauxite mines near Damanjodi in Orissa state, in which 11 personnel of the Central Industrial Security Forces (CISF) were killed. Nalco had suffered a production loss of over 100,000 tons of bauxite due to the suspension of the mining operations.

Reports suggest that the Maoists are engaged in illegal mining activities. Nexals are also reported to have engaged in theft of explosive material like RDX from the mines of Nalco and some other companies. NALCO uses RDX for explosion in mining related activities. A more recent report suggests that dispatch and transportation of bauxite from Pakhar mines in the Naxalite-hit area of Lohardaga district in Jharkhand state have come to a grinding halt since June 1, 2011 after a group of naxals torched six vehicles.

Pakhar mine supplies bauxite ore to different units of Hindalco in and outside Jharkhand state. Bauxite is required for producing aluminum.

The Naxalite-Maoist insurgency is an ongoing conflict between Maoist groups, known as Naxalites or Naxals, and the Indian government. Currently, it represents the longest continuously active conflict worldwide. Naxalites claim to be supported by the poorest rural populations. They have frequently targeted tribal, police and government workers in what they say is a fight for improved land rights and more jobs for neglected agricultural laborers and the poor. However frequent killings of villagers, using women and children as a shield, harassment of cadre, illegal mining operations, attacks on schools and infrastructure projects and using children, as young as 6 years old have called into question the Naxal claims of ‘fighting for people’.

Naxalites are a group of far-left radical communists, supportive of Maoist political sentiment and ideology. Their origin can be traced to the splitting in 1967 of the Communist Party of India (Marxist). Initially the movement had its center in West Bengal. In recent years, it has spread into less developed areas of rural central and eastern India, such as Chhattisgarh and Andhra Pradesh.

We will explore the issues and risks of terrorism in India in future posts.

–TC Molhotra

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