Iron ore deficit looms this year

The iron ore dynamics in India have reversed in the last one year. From a huge surplus until last year, the country has slipped into deficit, thanks to a stern action taken by the government to nab illegal miners. Shutting down of operations by miners amid threat of government actions has seen a massive cut in iron ore supply, forcing steel mills to look for alternative sources of raw materials.

A number of steel mills have started imports of iron ore from various destinations like South Africa and Mozambique, while others have set up offices in major trading centres like West AsiA and the United Kingdom for sourcing steel scrap to feed furnaces in India.

“India is going to remain in huge supply shortage next financial year. In fact, the scarcity has already started, with steel mills in Karnataka accumulating iron ore stocks from all possible sources to run their furnaces,” said L P Sonkar, advisor, Federation of Indian Mineral Industries (Fimi).

In the last financial year, that is, 2010-11, the total iron ore output in India was estimated at 208.11 million tonnes. With an estimated exports of 97.66 mt, the total availability for domestic steel mills remained at 110.45 mt. Joint Plant Committee (JPC), under the steel minister, projected the total crude steel output to be at 69.58 mt in the year.

According to Fimi, the overall demand of iron ore in the country today stands at 103 mt, which includes captive consumption by steel mills. The overall surplus last financial year stood at 80.34 mt.

But, the output of iron ore is likely to decline this year due to mine closure in the three leading producing states — Karnataka, Goa and Orissa. According to Fitch Rating, the country would add 30 mt of new steel capacity in 2012-13, taking the overall requirement of iron ore to over 160 mt by the next financial year.

Sudhir Bhalla, director, Ashlar Securities, said: “Faced with a shortage of iron ore, many steel mills have set up their offices in overseas ship-breaking centres to source steel scrap. The shortage has already started this year and will intensify next year. However, the government will explore some legal ways to re-commence operations at these mines.”

According to Fitch, India’s steel demand grew just 3.9 per cent in April-November 2011 to 45 mt due to a weaker demand from the construction and automobile sectors.