Steel companies fear spike in iron ore prices after SC order

According to industry sources, the compensation figure would be around Rs 25,000 crore

Steel companies are fearing a spike in iron ore prices in Odisha following a recent Supreme Court order in a case of rampant illegal mining.

In its judgment on August 2, the apex court directed recovery of 100 per cent cost of production of iron and manganese ore raised in Odisha beyond the limits approved under environment clearance, forestry approval, consent to operate awarded by the State Pollution Control Board, and mining plan approved by the Indian Bureau of Mines (IBM).

According to the court order, miners guilty of overproduction — captive as well as merchant lessees  — have to shell out amount as rationalised by the court-appointed central empowered committee (CEC). While the maths for the compensation figure is still being worked out, industry sources have pegged it at Rs 25,000 crore.

As mining companies, mostly small and mid-sized ones, are in no position to pay the amount, steel makers feel the cost would be passed on to them in the form of hike in iron ore prices.

“Given the backdrop of the Supreme Court judgment, the miners would be looking to maximise realisations from their operations to offset the compensation burden imposed on them. The fallout would be an accelerated increase in iron ore prices, the triggers for which are already in sight. This would needlessly burden the steel makers, especially the ones operating without captive ores, and raise the cost of steel production, making it uncompetitive,” said a senior executive with a steel company.

Over the last 15 days, the merchant miners in Odisha have already increased prices of iron ore lumps and fines by 9-10 per cent. Between August 10 and 23, iron ore fines prices were hiked from Rs 1,300 to Rs 1425 a tonne, an increase of 9.6 per cent. Prices of lumps in the same period were also raised 9.8 per cent from Rs 2,550 to Rs 2,880 a tonne.

Strong demand for iron ore fines in China and sustained domestic demand were factors supporting the rise in prices. Odisha’s iron ore supplies were significant as the state largely catered to the domestic market as opposed to Goa and Karnataka where a bulk of the production was exported.

Prabodh Mohanty, secretary, Eastern Zone Mining Association, said, “The hike in iron ore prices is not the fallout of the Supreme Court order. It is usually the impact of demand and market forces.”

Besides the impact of the Supreme Court order, demand for iron ore within Odisha has grown as firms facing insolvency proceedings like Essar Steel and Bhushan Steel are buying more iron ore to operate at higher capacities, said an industry source. With sustained buying by these companies, iron ore prices are expected to firm up further.

More than 75 per cent of the country’s steel production is fed by iron ore sourced from the market. 

Steel plants without captive mines are burdened with high input costs as opposed to the ones with captive ores as they enjoy comparatively lower input cost, assured quality, and optimised despatch.