Iron ore exports begin to revive as govt scales down restrictions

Miners are returning to world market after a near collapse of exports in the wake of the mining ban

The government has scaled down the restrictions on exports and mining has picked up in Goa and Karnataka. China was the principal reason for the galloping rise in India’s exports of iron ore since the beginning of the new millennium, hitting a high of 117.37 million tonnes in 2009-10. Soon, a combination of Supreme Court orders and state government fiats banning mining in Goa and Karnataka and imposing a raft of restrictions on mining activities in Odisha and Jharkhand led to a near total collapse in exports.

As if all this was not enough, Indian ore priced itself out in the world market when combined with high export duty. No wonder ore exports fell rapidly every year from 97.66 MT in 2010-11 to a shockingly low 4.50 MT in 2015-16. Moreover, major production fall resulting from restrictions on mining made India, which boasts the world’s fourth largest iron ore reserves, a net importer of the mineral in 2014-15 and also in the following year.

India vacating the market in such a major way, missing out on the commodity price surges, proved to be a boon for the likes of Vale of Brazil and Anglo-Australian groups Rio Tinto and BHP Billiton.

According to RK Sharma, secretary general of the Federation of Indian Mineral Industries, the blame for the loss of billions of dollar in export income from iron ore lies with the “steelmakers’ lobby which managed to convince the government at one point that any disposal of the feedstock, either lump or fines, in the world market would make the steel industry import-dependent in the future.”

The argument that exports would create future shortages of ore when the country has highly ambitious steel capacity development programme appears “fallacious” to Kishore Kumar, CEO of the country’s largest private sector iron ore producer, Sesa Goa. Kumar says, quoting figures from the Indian Bureau of Mines, even while the country had extracted 2.041 billion tonnes of ore between 2000 and 2013, the period saw iron ore resource making an impressive rise from 25.249 BT to 31.323 BT.

Indian exploration of iron ore is traditionally confined to shallow depths and better grades. Kumar makes the point that “drilling at greater depths and lower cut-offs of mineable ore as it happens elsewhere in the world will lead to significant expansion of our resource base.”

“India should learn from Australia and Brazil, which are highly focused on exploration for new deposits,” says Sharma. According to a KPMG report, by the end of this year, Australia and Brazil are forecast to have a share of 58 per cent and 27 per cent, respectively, of global sea trade in iron ore.

Late it might be, but the government finally realised that Indian producers of steel through blast furnace and sponge iron use lump ore with high iron content and not low grade ore that is exported. The steel industry’s preference for lump ore with iron content of 62 per cent and more will, however, not be held against it since feeding low grade ore in blast furnace raises the cost of making steel, thanks to then greater requirement of metallurgical coal, for which the country is becoming increasingly import dependent.

Thus the government in February 2016 extinguished the 10 per cent export duty on fines with iron content less than 58 per cent and the 30 per cent levy on lumps with iron below 58 per cent. This combined with mining operations returning to normal under the watchful eye of the government saw ore exports rise to 25.22 MT in the 11 months to February 2017. At the same time, improvement in local ore supplies led to a fall in imports. Ore production in 2016-17 was up 24.10 MT to 180 MT.

As Indian ore exporters are returning to the world market with enthusiasm after the forced layoff, miners in Goa are hoping that the state administration will be able to secure the Supreme Court’s consent for annual production to be raised from the present cap of 20 mt.

The Supreme Court constituted expert committee recommends that the Goan production cap should in the first instance be reset at 30 MT and then at 37 MT once the mining corridor for transfer of ore from mines to the port without causing any harm to the environment and inconveniences to local community is ready.

As Goa is seeking the court nod for ore extraction at a higher level, the directorate of mines and geology of the state has reassuringly announced its commitment to strictly regulate and monitor the extraction and transportation of ore.

Under the court order, annual ore production in Karnataka is capped at 30 MT: 25 MT for Bellary and 5 MT for Chitradurga and Tumkur. In the case of Karnataka, the expert committee says, ore extraction should be raised in two steps, first to 40 MT and then to 50 MT.

Building of new steel capacity in Karnataka demands high levels of local supply of ore.