Lifting of Karnataka iron-ore restrictions brings miners and consumers into fresh conflict

6th Aug 2018

The Central Empowered Committee (CEC), the body appointed by India’s Supreme Court on all matters related to mining, has recommended lifting restrictions on iron-ore pellet exports from the southern province of Karnataka, bringing to the fore the conflict between producers and consumers of the raw material.

The committee of the apex court justifies the export of iron-ore pellets from Karnataka using the premise that it will tackle a glut of raw material at pitheads, but steel companies have flayed the move to export the raw materials as many of the mills have to either source the raw material from neighboring states, incurring higher transport costs, or resort to imports to keep their steel mills running.

The ban on iron-ore exports had been a corollary to the Supreme Court verdict on illegal mining in Karnataka and closing down all mines in the region in 2011. While mining operations have since resumed, the ban of shipments of iron-ore from the province remained in place.

The CEC recommendation for resumption of exports would have to be ratified by the apex court before overseas shipment contracts could be concluded by miners and traders. However, the move has triggered another face-off between raw material producers and consumers.

Miners and traders pointing out the glut in the market, cited that in 2017/18 a total of 44-million tons of iron-ore, production plus carryover stocks, were made available for merchant sale but only about 30-million tons of sales were concluded during the year.

At the same time, the nine iron-ore pelletisation plants in Karnataka, with aggregate installed capacity of ten-million tons, were operating at only 50% to 60% capacity utilisation in the absence of offtake by domestic consumers and the absence of any export window.

However, steel companies with mills located in Karnataka have contested the premise of a iron-ore glut stating that prices of the raw material sourced from the regions had surged 17% for fines and 11% for lumps during the current month forcing the steel mills to source their requirement from mines in Odisha and Jharkhand, which even after factoring in transportation costs were lower than locally sourced iron-ore.

Companies like JSW have blamed the continuation of a high base price at the e-auctions conducted by the local government for merchant sale of iron-ore, and government miner NMDC, charging a premium for its produce.

However, miners have claimed that a skewed distribution policy was responsible for imperfect market conditions.

The Federation of Indian Mineral Industries, the representative body of miners has pointed out iron-ore miners in Karnataka were bound to effect sales through e-auctions conducted by the government. However, while miners were restricted in widening their base of buyers, steel companies were free to source their raw material requirements from anywhere — mines in neighbouring provinces or even imports.

Source: CREAMER’S MEDIA MINING WEEKLY