Mining entities in Karnataka expect iron ore prices to drop further

Mining entities in Karnataka are expecting iron ore prices to fall as supply from NMDC's Donimalai mines is likely to restart. Also, lesser offtake due to a decline in demand for the steel sector.  

To ensure seamless renewal of mining leases allocated to the government companies, the Union government recently amended the Minerals (Mining) by Government Companies Rules, 2015. A major beneficiary would be NMDC, which got into a legal battle with the Karnataka government over Donimalai, after it was asked to pay a premium equivalent to 80 per cent on what was extracted from there for lease renewal. Instead, NMDC went to court and stopped mining operations last November.

The company is now waiting for state clearances to resume operation. 

As for the steel industry in Karnataka, it imported around six million tonnes of iron ore during 2018-19, due to shortage and inferior domestic quality. Seshagiri Rao, group finance head at JSW Steel, said: "Restoration of supply from this mine (Donimalai) will enhance the availability and benefit ore-starved sponge iron, pellet and steel plants in Karnataka."

Steel makers are happy, as it would bring down the price by 10-15 per cent, said a senior representative from the mining industry. 

Basant Poddar, former head of the southern chapter of the Federation of Indian Mining Industries, says other reasons for the price of ore to move down is the gloomy state of the realty and automobile sectors; also the ban on export form the state continues. Also, the secondary steel sector is in doldrums. 

After a robust 7.5-8 per cent growth in the past two financial years, the Indian steel industry is expected to see a mid-cycle slowdown to 4-5 per cent this year, says rating agency CRISIL. It attributes this to muted construction investment and a weak automotives market. 

Global steel prices declined 13 per cent in the first eight months of 2019 due to weak demand, unseasonal jump in inventory levels and trade tensions. This was despite a 56 per cent run-up in global iron ore prices during the same period, shrinking margins for producers.