NMDC's steel foray hits Mines Ministry hurdle

Over a year after state-owned mining company NMDC announced a foray into steel making, the Mines Ministry has said this forward integration is not in the best interest of mineral development and utilisation.

“For exploiting minerals, the mines ministry favours a model where a large mining company like NMDC supplies iron ore to many small steel makers rather than a model where the large miner itself sets up steel plants for production,” a senior government official told Business Standard. “The current developments in Karnataka’s mineral sector have vindicated our stand.”

Iron ore production in Karnataka, India’s biggest producer of the mineral, had stopped after the Supreme Court banned ore mining in the state last month, on reports of large-scale illegalities and violations of environmental norms. As short-term relief for local steel companies, it later directed NMDC to mine a small amount, of a million tonnes every month, for supply to the local industry, comprising largely a dozen relatively small companies.

According to the Mines Ministry, this model leads to minimal wastage of the ore, apart from enabling discovery of the market price for the mineral. On the other hand, distortions occur in both availability and market prices when any large miner channelises its technical expertise in mining towards making the end-product.

While there has been no formal official communication from the Mines Ministry to the Steel Ministry, NMDC’s parent, the official said a suggestion to this effect had been made on at least two occasions during inter-ministerial discussions recently. A senior official from the Steel Ministry, however, denied having got any such suggestion or advice from the mines ministry. When asked, a senior NMDC executive said he was not aware of any such advice from the mines ministry.

Another senior official in the know said the mines ministry's view flowed from the broader policy approach outlined in the National Mineral Policy of 2008. The policy aims to promote minimal wastage of ore and long-term assured linkage for healthy development of the mineral sector.

India, with annual production of 65 million tonnes, is the fifth largest steel producer in the world. The gap between domestic demand and supply of steel is negligible and the steel ministry expects the country would become a net exporter of the product in two years.

NMDC plans to set up an integrated steel plant with three million tonnes annual capapcity at Nagarnar in Chhattisgarh and a five mtpa plant at Bellary in Karnataka, in two phases. For the Nagarnar plant, the company has already applied for a mining lease with the state for meeting raw material requirements. Production is supposed to start in 2014, about 42 months after receipt of clearances and placement of orders for the technological package.

NMDC recorded an 88 per cent jump in net profit at Rs 6,499 crore in 2010-11 on total income of Rs 12,574 crore. Its share price at the Bombay Stock Exchange closed down 5.3 per cent at Rs 227.2 on Friday.