Iron ore shortage hurting industry

Tamajit Pain

Iron ore shortage continued to hog the limelight mainly because of prevailing monsoons and auctioned mines not being fully operational, sources said.

Odisha produces 110 million tons (mt) of iron ore a year; the last fiscal was an aberration, when the production grew to around 145 mt.The state also produces nearly 25 percent of the country’s total steel.

Decreased iron ore production, lucrative exports to other states of India and to other countries are the two primary reasons for the shortage, said a source.

Indian parliament passed an amendment to its mining legislation in 2015, stipulating an expiry date of March 31, 2020 for all existing non-captive mining leases in the country and March 31, 2030 for captive mines. Several mines in Odisha, the country's top iron ore producer, were auctioned ahead of the March deadline.

Leases for 19 merchant mines, which contributed majority of Odisha’s 115 mt iron ore production in 2018-19, expired in March and were successfully auctioned, industry sources said.

The government had extended the validity of all statutory approval of these mines by two years, to ensure the successful bidder can resume production immediately.

As on August 1, only few mines of these 19 could start limited production. Most of the production is consumed for captive use.

NMDC, which takes multiple factors into account to arrive at the sale price of iron ore including domestic demand-supply scenario, price of steel, stock in hand, previous month sale, international iron ore price, price of competitors, etc, had reduced the price by `900 per ton in April and May; but increased the price by `700 in July and August.

The state-run miner has announced that the prices of iron ore have been further increased and with effect from September 5, 2020, lump ore is priced at `3250 per ton and fines at`2960 per ton. The above FOR prices are excluding Royalty, DMF, NMET, Cess, Forest Permit Fee and other taxes.

The price increase has been in the range of `290-340 per ton for September. The prices for Baila lump and fines have been increased by `300 per ton and that of DR CLO by `340 per ton.

Domestic iron ore prices in India have rallied on limited merchant availability in Odisha as most of the auctioned mines are yet to resume production. The revised prices for DR CLO stands at Rs 3770 per ton.

Strong seaborne iron ore prices and escalating domestic steel prices form the immediate backdrop to the price hike. Spot iron ore price rose to over 6.5 years high on strong demand. Spot iron ore prices continued to rally on strong demand for medium grades. Price of Fe 62 percent fines was assessed at $129 per ton CFR China. Firm end-user demand for mainstream Australian fines and limited portside inventory continued to support prices.

The persistent supply imbalance in Odisha due to 14 of the 19 newly auctioned mines failing to start operations has resulted in production loss of around 4 million tons per month. The supply squeeze in Odisha, which contributes over half of the country's annual iron ore output, is evident.

Recent OMC's auction fetched hike of about `800-2000 per ton in bids over the base price, sources said.

NMDC recorded iron ore production of 1.62 mt in August, down 26 percent on a monthly basis compared to 2.19 mt in July. However, on a yearly basis sales increased 15 percent compared to 1.41 mt in August 2019. Sources highlighted that heavy rains resulted in lower iron ore production.

Meanwhile, Indian steel manufacturers have increased domestic HRC prices by `2000 per ton for September deliveries. Prices have moved up on the back of supply concerns due to maintenance shutdowns and hike in global steel prices, resulting in a positive price outlook for iron ore.

Odisha mills flag concern

Facing iron ore shortage, Odisha-based steel firms, which do not have operational captive mines, have asked the government to make it mandatory for all iron ore miners in the state to sell at least half of their produce to Odisha-based sponge iron and steel units unless they consume 50 percent for their own captive use.