India’s Iron Ore Export Risks Steel Plant Cancellation
Monday, 20 February 2012 | 00:00
The normally savvy Indians could be accused of shooting themselves in the foot over iron ore production limits. Fears of over-exploitation and profiteering by exporters of iron ore (to the detriment of the domestic steel producers) brought rising restrictions, export taxes and finally outright bans in certain states.
Exports from major ports were down 35 percent year-on-year in November and the Orissa state government is continuing to cancel export licenses. Both mining and exporting of iron ore from the state of Karnataka remain suspended and the government has recently raised export duty from 20 percent to 30 percent. India produced 260 million metric tons of iron ore in 2009, but this fell to 190 million tons in 2010, and we see this settling at 150-160 million tons over the next two years – effectively meeting domestic demand.
An article in Mineweb reports that Karnataka has moved to the Supreme Court, India’s highest, to contest the cap for annual iron ore production in the state. A panel had earlier submitted a report asking that annual iron ore production in the southern state be capped at 30 million tons. Projections of India’s steel production requirements vary, but India’s Business Standard reported recently on projections of 180-200 million tons by 2020, up from 66 million tons in 2010-11, according to India’s Ministry of Mines.
Steel Production Taking Hits?
Whether India will achieve such a level of steelmaking capacity remains to be seen. The country cannot seem to decide how to manage its iron ore-to-finished-steel industry to best effect and could be seen as a classic example of an industry in transition, part way from centralized, state-controlled behemoth of the 1990s, to the truly private enterprise that it needs to become if it is to efficiently assign resources and investment.
Take the current situation: although the artificial iron ore production limit of 30 million tons meets the current domestic requirements of 14.36 million tons of steelmaking and pig iron production, the ban of exports is costing Karnataka and the Indian railways that move the ore something like $2.2 billion per year — the loss of export taxes alone is nearly $1 billion.
The ban is based in part on earlier estimates that the state would run out of iron ore in 15-20 years, but the industry retorts that such estimates are made on surveys to just 50 meters underground, whereas the industry knows that iron ore resources extend up to 150 meters. The Indian Bureau of Mines estimates some 2.16 billion tons of iron ore remain un-mined. Meanwhile, several projects currently underway risk being canceled if iron ore cannot be supplied. Seven companies are said to be at an advanced stage of construction, including Tata (3 million tons), ArcelorMittal (6 million), JSW Steel (6 million), POSCO (increase to 6 million) and Hazira Steel (6 million tons). New steel capacity, totaling 35 million tons, is in advanced stages, with most companies depositing 40 percent of the cost of land with the Karnataka Industrial Area Development Board.
The Next Act of the Farce
Just as states cannot agree on national infrastructure projects such as highways and energy, that same goes for iron ore mining and steel production. The government and the states cannot seem to develop a coherent policy for development. The biggest losers in the farce unfolding in Karnataka could well be the steel companies for whom the original restrictions were imposed.
Arguably, the export ban has reduced steelmakers’ need to compete with overseas buyers for iron ore supplies, but at the price of halting all investment in new mines. Meanwhile, the loss of Indian exports has supported the hand of Australian and Brazilian iron ore producers in supporting prices paid by Asian buyers, particularly China, for whom India was a major iron ore source.
Source: Metal Miner
There are no comments available.