Financial Express | Nov 20, 2020
Domestic iron ore prices across grades has doubled from Rs 4,000 per tonne to Rs 8,000 per tonne on an average, causing a spike in the cost of steel production.
The Centre is considering imposing a short-term ban on exports of iron ore, since the steel sector is facing a raw material shortage, Union minister for steel, petroleum and natural gas Dharmendra Pradhan said on Thursday.
Domestic iron ore prices across grades has doubled from Rs 4,000 per tonne to Rs 8,000 per tonne on an average, causing a spike in the cost of steel production. Two tonne of ore are required for a single tonne of steel production.
Addressing the MCC Chamber’s annual general meeting here, Pradhan said, “India produces around 250 million tonne (mt) of iron ore per annum, whereas the requirement is around 180 mt. So the 70 mt will have to be exported,” Pradhan said, but acknowledged the present short supply situation. Higher prices of steel could be a dampener for the construction industry, which is looking up, after the cessation of activities due to the pandemic-induced lockdown.
“TMT bars, used for construction, are now being sold at Rs 50,000 per tonne. Hot roll coil prices have gone up from Rs 35,000 per tonne to Rs 42,000 per tonne during the past few weeks. There will be no buyers of iron and steel at such a high price and projects will get halted. Even the infrastructure projects will become unviable if prices of construction material go up at such a level,” said Lalit Beriwala, managing director, Shyam Steel.
West Bengal has 64 sponge iron and steel-making units and none of the units have more than 15 days of raw material stock. “ These units will close down in 15 to 30 days, if the government doesn’t take action to ensure iron ore supplies to the industry,” Beriwala said.
Pradhan made clear that pricing was a matter of market dynamics and the government had no intentions to regulate on the market forces, though supplies was its concern.
The ore supply problem has emanated from the auctioned merchant mines of Orissa, which during the first half of the fiscal has produced only 4.06 mt against a targeted 24.47 mt during the period. The government up to March this calendar year has auctioned 21 of the 24 mines but only seven mines have started production with the rest not yet starting to produce. The 11 mines of Orissa Mining Corporation (OMC) and a few other merchant mines, whose lease period are yet to expire, produce 4. 74 mt per month on an average but these mines have brought down production to 2.14 mt as of August this year, further escalating the short supplies.
The 21 operational mines, which were auctioned, after the earlier lease holders’ term expired, have the capacity to produce 90 mt per annum. But most of these mines, save that of the JSW’s and AMNS’ (earlier Essar Steel), didn’t start production. The little that JSW and AMNS produced, were carried for their own iron and steel units.
The operational mines were bid out at premiums ranging between 94 and 150% over the base price of ore as set by the Bureau of Indian Standards. Besides the winners of the bids agreed to pay a royalty of 15% on the base price, 30% of the royalty as District Mineral Fund Contribution and 2% of the royalty to the National Mineral Exploration Trust. All these put together, specially the high premiums, to be paid to the government, has made mining commercially unviable, for which most have not started production, though aggressively bade of them.
