Mining firms cut output on low steel mill demand

India’s independent iron ore mining companies have cut output by 80 per cent since June due to uncertainty over exports and recovery in demand from domestic steel mills.

Says RK Sharma, secretary general of the Federation of Indian Mineral Industries (Fimi): “Southern Railway, which used to transport 25 rakes everyday, is handling only five. The same is the case for the entire country.”

Hardly 20 per cent of India’s normal total annual output of 235 million tonnes (mt) is being extracted from mines across the country, Sharma says.

Independent iron ore miners do not have steel production facilities and therefore sell the entire output to others.

There are three reasons for the fall in output.

First, the government raised the royalty to 10 per cent of the cost of output from Rs 27 a tonne about a year ago. Second, the world’s largest steel producer, China, banned import of low-grade iron ore (with less than 60 per cent of iron content) through traders. This hit hard as most of India’s iron ore exports (105 mt annually) are through traders and comprise mainly low-grade ore.

Then, before the companies could find alternatives, the Karnataka government denied renewal of transportat licences to miners in the state; the stated reason was crackdown on illegal exports. Around 40 per cent of the country’s mineral output comes from the state.

“Only a few commitments that were negotiated before the ban are being executed. New mining activities for the current season have not started. Generally, the new year demand starts in the first week of September. But this year, the uncertainty over the mining industry has cast a shadow over steel and allied industries,” an analyst said.

Banning exports across the board affects genuine miners, too, says a senior official of MSPL, one of the largest mining companies in the state.

He said most ore mined illegally was being consumed by small local steel mills operating in the vicinity of the mines.

Spot iron ore (with 63.5 per cent of iron content) prices in China fell to a six-week low of $147 per tonne from $149 per tonne last week due to low demand. The world’s largest buyer (about 700 million tonnes a year) has asked small steel mills to either close or trim output by 70 per cent, as the country advances to meet a new, year-end power savings target.

According to an estimate, the country could cut up to 25 mt annual capacity in the coming months.

However, Glenn Kalavampara, secretary of the Goa Mineral Ore Exporters’ Association, says the post-monsoon demand has not come yet because of intermittent rain in the state. Since high moisture affects quality, miners generally avoid transport during this season. A clear picture would emerge only in the first week of October, he said.

Haresh Melwani, a Goa-based miner, says Chinese enquiries, which generally start in the first week of September, have not yet begun this year.