Mining curbs force iron ore imports

Steel industry worried, points to implications on downstream investment plans, taxation.

With no sign of abatement in the ongoing mining crisis that has snapped iron ore supply to key infrastructure sectors, companies have started imports.

Iron ore imports are happening from South Africa at $130 a tonne (cost & freight). Some smaller steel mills have already contracted imports, while major ones are said to considering doing so. Imports, however, work out $10-15 costlier than the domestic ore. If it becomes a trend, it would be significant,as India is a net exporter of iron ore.

“Many plants in Gujarat have been importing iron ore pellets from Russia and Ukraine for some time. Many of the major steel mills are expected to follow the same route, to keep up with their expansion plans,” said Praveen Kumar, chairman, Maya Iron Ores, a derivative commodity broking firm.

Iron ore mining in India has been hit by bans and restrictions. The current production is insufficient to suffice for current steel mill requirements. Steel production has been cut considerably. Says Kumar: “Indian steel mills should have gone full throttle to gain leadership in world production. But the current raw material issue has put major producers on the back foot.”

The market is buzzing with reports that major steel companies have already begun imports. An industry source said, “JSW Steel, Essar Steel and Chowgule & Company (a large iron ore miner in Goa) are understood to have imported for meeting their demand after supplies from Karnataka were cut.”

While JSW Steel and Essar Steel’s spokespersons categorically denied this, Chowgule had not replied to the mail sent by Business Standard.

The industry source maintains the company imported 105,000 tonnes of high-grade ore in two shipments from South Africa earlier this year. Another industry source said Essar and JSW have imported 90,000 tonnes each of iron ore lumps from Kumbha Resources, South Africa, to meet the demand for their respective steel plants.

Mining and export of iron ore in the largest producing state of Karnataka have come to a halt after the Supreme Court imposed a ban there, due to rampant illegalities and violations of environmental norms.

Chowgule had so far been sourcing iron ore for its 1.8-mtpa pelletisation plant in Goa from Karnataka. As for JSW’s alleged import, this is understood to be its second consignment of ore. The first hit came here four-five months ago, said the source. JSW is said to have ordered 300,000 tonnes of ore lumps from Kumbha to be completed before March 31, 2012. Its Karnataka steel mill had reduced operating capacity to 35 per cent a couple of months before, due to unavailability of ore. The capacity was partly restored to 65 per cent in November.

Experts and industry leaders have been raising concerns over the possible fallout of such import substitution. “If this becomes a trend, it will have a severe negative impact on greenfield (new) investments planned in downstream facilities of steel, sponge iron and pelletisation, owing to the volatility in natural resources’ supplies from outside. It will also have major tax implications, apart from the impact on balance of payments,” said Gokul Chaudhri, partner, BMR Advisors.

Ennore Coke’s chief executive officer, Ganesan Natarajan, said, “India was tuned with coking coal imports so far. The new trend of importing iron ore despite abundance of domestic reserves is creating uncertainty for the steel industry.”