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70 plants face closure amid trickling supply of raw material, production curbs in some states
India’s production of iron ore is estimated to fall to 90-100 mt in the current fiscal from an average of 200 mt in the past years, analysts have said.
Chhattisgarh has written to NMDC Ltd, the nation’s largest iron ore producer, seeking more ore for its 70 steel and sponge iron plants that are facing closure amid a trickling supply of the key raw material as production remains banned or restricted in Orissa, Karnataka and Goa.
“We have requested NMDC for more iron ore,” Munish Kumar Tyagi, the state’s mines secretary said in an interview. “We have asked them to stop exports and cater to the domestic market first.”
Tyagi said his department wrote to NMDC a few days ago after an industry body sought help, faced with dwindling supply from neighbouring Orissa, where the state government has been imposing new rules to check illegal mining.
Most of the iron ore produced in Chhattisgarh is by Steel Authority of India Ltd (SAIL) and is used by the steel maker. NMDC mainly caters to clients through long-term contracts, leaving small sponge iron units dependent on supplies from Orissa.
The Supreme Court banned iron ore mining in Goa earlier this year in an environment case; last year, it had banned mining in Karnataka in a similar case. As the cases continue to be heard, some mines in Karnataka have been allowed to reopen, but NMDC still owns the lion’s share of the output at 27 million tonnes (mt) a year.
In Orissa, India’s largest iron ore producing state, the government has imposed fines on 196 mining lease owners for excess mining and has put a cap of 52-55 mt on iron ore production per year.
NMDC acting chairman C.S. Verma said the company was committed to meeting the needs of Chhattisgarh.
“During 2012-13, NMDC has allocated iron ore to Chhattisgarh units at the higher end of their long-term quantity range, i.e., 30 lakh tonnes of lump ore and 10 lakh tonnes for fine ore,” Verma said in a reply to a questionnaire. “During April-November, the Chhattisgarh units have lifted about 10.6 lakh tonnes of lump ore against a pro rata allocation target of 20 lakh tonnes. Similarly, for fine ore also, lifting has been about 2.8 lakh tonnes against the pro rata target of 6 lakh tonnes till November.”
A person in the company, who declined to be identified, said many iron ore consumers were staying away from NMDC’s electronic auctions as they found the prices to be too high.
Mines secretary Tyagi said iron and steel plants faced other problems as well. “There are problems with coal supplies. There is a problem of finding markets also,” Tyagi said.
“If the situation stays like this, plants could close.”
Can exports stop?
India’s production of iron ore is estimated to fall to 90-100 mt in the current fiscal from an average of 200 mt in the past years, analysts have said. The country produced 73.42 mt of steel in 2011-12 and this year; to sustain the same level of production, the steel sector would need 120 mt of iron ore.
Already the shipments of iron ore are coming in from Brazil, which are costly, and more could be needed to sustain steel production, analysts said.
NMDC chairman Verma did not say if the exports will be stopped, looking at the demand of the Chhattisgarh government and the acute scarcity of iron ore. It was a matter for the government to consider, he said. “NMDC has been exporting a small quantity, i.e. about 5% or so of its total production, to Japan and South Korea through MMTC Ltd, the canalizing agency for iron ore export of the government, based on the decision of the Union cabinet,” he said. “During 2012-13, about 2 mt of iron ore has been allocated to Japan and South Korea.”
Verma said NMDC was “fully geared up to meet the committed quantity to all its domestic customers” but he said production was stagnant owing to evacuation problems on the back of frequent stoppages by insurgents, the disruption of night movement and a broken slurry pipeline in the state. “At the beginning of the month, we had about 7 lakh tonnes of loadable stock in Bailadila sector, besides stock at valley dump,” Verma said.
A senior analyst said he expects some consolidation in the steel and iron sector on account of the shortage of the raw material in the country.
“Already, about 25% of the sponge iron plants are closed. It is unlikely they will reopen as the big steel producers will take their market share as they are expanding their capacities very fast,” said Rakesh Arora, head of research at Macquarie Research, India. “Some of these sponge iron units may get taken over by the mid-sized iron ore miners who would want access to their captive mines. So there is likely to be some consolidation in this sector as a result of the iron ore shortage.”
Last week, the government sold 10% of its equity in NMDC for about Rs.5,828 crore.
On Wednesday, shares of NMDC rose 0.06% to Rs.162.65 on BSE. The exchange’s Sensex gained 0.57% to 19,476.00 points.
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