Ore supplies may not improve immediately

Caps to hurt Karnataka output, Sesa Goa's mine may take 6 months to open

Miners and iron ore-starved steel makers in Karnataka can rejoice, as the Supreme Court (SC) has allowed 63 mines to reopen. Though the ruling has ended the 20-month mining ban, iron ore output may not rise immediately. Prior to the ban in 2011, Karnataka produced 38 million tonnes (mt) a year. Even if all the Category B mines (63 in all) start production in FY14, the state will exit FY14 with fresh mining output of 21 mt, explains Emkay Global.

Of this, NMDC's mines produces 9.5 mt per annum and another 5.5 mt would be produced by the Category A mines, which had resumed mining operations last year. There are nine mines in Category A and though the mining ban was lifted last August, three have resumed operations in 2013. Even if all the Category B mines start production, it would not add up to over 5.5 mt. Also, since the SC has accepted all the reports of the Central Empowered Committee (CEC), mining output in Karnataka would be capped at 30 mt a year.

Not only could output be capped for the state but also for individual mines, too. The CEC has recommended mining caps of 10,000-15,000 tonnes for some mines, which would make them unviable. And Sesa Goa's mine in Karnataka will need to renew its mining lease this year before it starts production as it expired in October last year, says Emkay Global. The CEC has put a cap on output from Sesa's mine at 2.9 mt from its original six mt capacity.

Steel producers in Karnataka have seen their utilisation levels dip as iron ore output plummeted in the state over the last two years. JSW Steel, the largest steel producer in Karnataka, is an obvious beneficiary of the latest ruling. The company saw utilisation levels fall to 77 per cent in FY13. After the opening of the Category A mines, the company has acquired enough iron ore to take care of its FY14 steel production from Vijaynagar. ICICIDirect expects utilisation to improve to 82 per cent in FY14 on higher ore supplies.

Iron ore supplies dropped sharply over the last two years. At FY10 end, iron ore production stood at 218 mt, which is estimated to drop to 135 mt in FY13. India's steel capacity has jumped from 61 mt to 86 mt. Domestic industry consumes 120 mt of steel and the surplus is exported. So, the sc ruling is a positive, but benefits will accrue only in FY15.