India is likely to emerge as a net importer of iron ore next year after about four years, and may remain a key buyer in the international market for the next few years, as domestic supply is likely to take a big hit due to closure of 24 working mines.
According to Federation of Indian Mineral Industries, the tenure of 329 non-captive mining leases is set to expire in March, including 24 working iron ore mines, which contributed roughly 30% to last year’s iron ore output of 210 mln tn.
Though the mines would be up for auction from April, and the government has assured it will try to expedite the auction, industry officials believe it could take at least 3-4 years for these mines to be operational again, as it can take a long time to obtain fresh forest and environmental clearances.
“…physical output of the minerals from such mines can only be available not prior to year 2024-25,” Federation of Indian Mineral Industries said in a note.
The closure of mines would reduce iron ore supply by 65 mln tn, which in turn would affect nearly 45 mln tn of steel production, former steel secretary Aruna Sharma said.
“In my opinion, the disruption would persist for three years going ahead if the statutory clearances are not expedited and if the mines that are not coming for auction fail to increase their production,” Sharma said.
According to market participants, even if some captive miners and public undertaking mining companies boost their production this year to make up for the possible loss in output that would follow the mines’ closure, supply disruption of at least 65-70 mln tn of iron ore is likely to emerge next year, and aggravate further in the following years.
The government so far has allowed state-run Steel Authority of India Ltd to sell 25% of its annual production in the local markets and also has notified Mines and Minerals Development and Regulation Amendment Act, 2015 to streamline the grant of mining leases to maintain sufficient availability of iron ore for the steel sector.
National Mineral Development Corporation and captive producers such as JSW Steel Ltd and Tata Steel Ltd, too, have ramped up their production to meet the shortfall. But it may not be enough.
Much of the output loss would have to be made up by costlier imports.
The country is likely to import at least 10 mln tn of the ore next year, according to estimates drawn up by ICRA Ltd. Imports are likely to increase further in the subsequent years as stockpiles created by other producers start drying up.
India was last a net importer of iron ore in 2015 when the country imported 12.09 mln tn and exported 6.12 mln tn. Since then India’s exports have far exceeded imports.
In 2018, the country imported 12.8 mln tn of the ore and exported 16.19 mln tn, according to commerce and industry ministry data. In Apr-Sep this year, the country imported 900,000 tn of the ore and exported 17.18 mln tn due to an oversupply in the domestic market.
Costly iron ore imports are seen as aggravating India’s trade deficit as the country already is a net importer of essential items such as edible oil, electronics, heavy machinery, coal, and precious metals.
In such a scenario, prices of iron ore may also firm up as the international prices are already higher at an average $100 per tn.
In the international market, iron ore prices shot up to $120 a tn earlier this year due a production outage in Brazil. With India coming to the market as a net importer next year, prices could top even that level.
India is one of the largest consumers of iron ore in the world.
The country generally imports higher-grade iron ore above 60% iron content and exports lower grade below 58% iron content to China.
Moreover, with a 30% export duty, market participants also fear that the domestic miners would have little option to export the lower-grades next year and make up for the higher-grade imports.
“India already produces very good quality of iron ore and we are self-sufficient. Therefore, ideally importing should not be an option,” Sharma said adding that the country should not resort to China for imports as we already compete with China in finished steel products.
Brazil and Australia remain origins for sourcing iron ore, but it would further add to the transport cost.
Crisil Research expects domestic iron ore prices to rise 15-20% next year due to the supply crunch and costlier imports.
This could be another blow to the steel industry that is facing higher input prices on one hand, and low demand on the other.
The supply deficit is also seen extending to the user industry such as manufacturers of sponge iron and pellets.
“Though supply of sponge iron is likely to be balanced out by the captive mines not going for auction next year, the pellet users in the sponge iron industry would be impacted by the supply shortage as they source their raw materials from merchant pellet manufacturers or small modules of captive pellet plant. This would lead pellet prices to firm up,” Sponge Iron Manufacturers Association Executive Director Deependra Kashiva said.
“Mines in Odisha are at a critical stage as the disruption would impact more of the Odisha based iron and steel producer,” he added.
Odisha accounts for 45% domestic iron ore production as the state alone produced 114 mln tn of the ore so far this year as against a total production of 207 mln tn.
Market participants now pin hope on the government expediting the statutory clearances next year and easing export duty as the country has a huge stockpile of lower-grade iron ore and inadequate beneficiation plants to upgrade these ores.
Data from the Indian Bureau of Mines showed stockpile of iron ore lumps and fines were at 162.9 mln tn in 2018-19 as against 151.5 mln tn 2017-18. There is an unsold low-grade iron ore stockpile of 94.13 mln tn in Odisha and 43.11 mln tn in Jharkhand as on Mar 31, 2018, Federation of Indian Mineral Industries’ analysis showed.
“This ore is neither required by the domestic steel plants nor can be exported because of the export duty of 30%. These stockpiles occupy huge space inside mines, pose a challenge to scientific mining and environmental management,” the mining industry body added.