The closure of several large iron ore mines in Odisha for non-payment of the penalty imposed for excess mining over the past decade has put ore prices on fire. The uncertainty of availability has encouraged another big supplier, central government-owned NMDC, to raise its prices sharply.
Between October 2017 and the present, merchant miners in Odisha have raised the price of iron ore lump by 49 per cent and of fines by 59 per cent. In this period, NMDC increased the price by 35 per cent for lumps and eight per cent for fines. With Odisha and NMDC together accounting for 45 per cent of iron ore supply to the domestic steel industry, this has put the latter under stress.
The pace of increase in ore prices within the country is more than double the rate of swing in the commodity in the international sphere, making it clear that the hike is more due to local factors than import demand from China.
The main factor is uncertainty surrounding production in Odisha, where 55 per cent of the country's total iron ore output came from last year.
Further, it met a third of the ore requirement of the domestic steel industry operating without captive mines.
The developments in Odisha followed a Supreme Court order on August 2 that iron ore and manganese miners in the state who had raised output beyond the limit of their environment and forest clearance between 2000-01 and 2010-11 would pay compensation to the extent of 100 per cent of the value of the excess or face closure.
After the order, mining entities in Odisha and NMDC raised their prices. Besides, the miners paying the compensation want to recover the money in the shortest possible time as their leases end in 2020 under the new MMDR Act before being put for auction.
Meanwhile, following the expiry of the December 31 deadline for payment of compensation, the Odisha government has imposed a shutdown on seven working mines, some in the large category, knocking off annual ore output capacity of 20 million tonnes.
This is likely to push ore prices further in the near future, said an analyst. It is projected that they might go to Rs 6,500 per tonne for lumps and Rs 3,000 a tonne for fines in about a month or two, the analyst added.
Nearly 75 per cent of the country's steel making capacity is dependent on merchant miners for iron ore sourcing. The impact of increase in ore prices has made steel making costlier by Rs 1,600-2,000 a tonne in the past two months. Also, the global price of premium coking coal has surged to $263 a tonne from $180 a tonne FOB Australia in two months, which has led to a further increase in the input cost of steel. The estimated total impact on input cost of steelmaking due to iron ore and coking coal is at least Rs 4,000 a tonne, says the industry.