Iron ore surplus rises sharply in Karnataka on falling demand, export ban

Supply in the state is higher compared to demand amidst production restrictions and the ban on exporting ore out of the state imposed by the Supreme Court

Supply of iron ore has surged to excessive levels in Karnataka, which has been under severe restrictions since eight years. Exports, even to other states, are still prohibited, thereby leaving miners dependent on steel firms within the state.

Surplus availability currently stands at 5.19 million tonnes (mt). The higher supply vis-à-vis demand is on account of the production cap and ban on exports. In 2019, total exports from other states stood at 10.34 mmt of fines, and 1.116 mmt of lumps. This reflects the export potential for Karnataka.

In 2012, the Supreme Court —hearing a case of illegal mining and export from the state — imposed a ban on export and placed a cap on production. These were to protect the environment and the state’s revenue.

People in the know said: “Restrictions on iron ore trade in Karnataka is suppressing growth and has had deleterious effects on the industry as well as the exchequer. While other states export iron ore based on the EXIM policy of the government, an application by Vedanta and Mineral Enterprises — seeking approval to export ore not purchased by the steel and associated industries during the e-auction — is pending before the Supreme Court.”

 

 

The state exchequer has been hit to the tune of Rs 29,059 crore over the last 10 years due to unsold ore. In Karnataka, 70 per cent of the sourcing is by JSW. With only a few active purchasers of fines in the auctions, there is no competitive bidding and large quantities of material are sold at the base price.

For instance, the 57 grade of iron ore fines from Odisha have realised an average Rs 1,550 per tonne (wet metric tonnes or wmt) ex-mines, during February/March. Karnataka prices of the same stood at Rs 1,490 per wmt (2per cent lower).

The domestic NMDC-benchmark prices were drastically revised downwards during May/June by Rs 900 per tonne. In December 2017, the apex court had raised the production cap in Karnataka to 35 mt. 

However, in 2020-21, production was estimated at 36.66 mt, against a demand of 32.62 mt.  

Hence, “there was clearly no shortage of supply to necessitate any continuation in restrictions,” said the mining company executive.

He added that under the new auction regime (introduced in 2015), several end-users have secured mining rights and commercial production of ore from such leases, and hence their dependency on the e-auction has fallen.

The surplus is only expected to increase. Hence, “an alternative market is urgently required, given that iron ore may remain unsold even if the entire domestic demand is met from leases in Karnataka, and without recourse to material from outside the state,” said the Federation of Indian Mineral Industries (FIMI).