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Cartelisation alleged by Karnataka iron ore mines

Base prices doubled in e-auctions; steel makers to move Supreme Court, CCI for intervention; want price fixation agency

Mahesh Kulkarni  |  Bangalore 

Iron ore prices have almost doubled at e-auctions in Karnataka, with one mine after another setting much higher base prices. It has led to the impression that they’ve come together to keep prices of this scarce steel raw material high.

The new mines started over the past couple of months and selected ones in Category-B (mines were classified in A,B and C, depending on the extent of illegality; a gradual reopning is being permitted, after rectification procedures) have raised prices significantly.

The base price of 61 per cent content iron ore fines have more than doubled to Rs 5,000 a tonne as against Rs 2,250-2,475 a tonne charged by others.

  • The base price of 61% content iron ore fines have more than doubled to Rs 5,000 a tonne as against an average of Rs 2,250-2,475 a tonne charged by others
  • Government-owned NMDC prices are Rs 2,000-2,200 a tonne
  • The steep rise in ore prices has significantly increased the cost of operation for steel makers in Karnataka
  • As the demand and supply mismatch is set to continue, the steel makers are considering an option of filing an affidavit in the SC, with a plea for a price regulator

Government-owned NMDC prices are Rs 2,000-2,200 a tonne. Last week, a large private company with leases in Category-B fixed a base price of Rs 5,000 a tonne in e-auction.

However, there were no takers for its ore, sources told Business Standard.

Another firm in the category with a little lower price tag could find buyers. The move to increase prices by these firms has given a sense of cartelisation among the mining

Denying this, a prominent mining company executive, who did not want to be named, said: “There is no cartelisation; not all miners are charging high prices. I agree a few have quoted unreasonable prices at e-auctions. However, the base price fixed by these mines are different and, hence, it cannot be called a cartel.” The steep rise in ore prices has significantly increased the cost of operation for steel makers in Karnataka. “Some of the lessees have formed a cartel and started increasing base prices by 70-80 per cent over and above the NMDC prices in the relevant grade. This arbitrary way of putting abnormally high base prices are resulting in huge profits for the lessees,” said Vinod Nowal, president, Karnataka Iron and Steel Manufacturers Association (Kisma).

Members of Kisma met the chief secretary and mines secretary last week and demanded immediate approval for other mining firms, waiting for several statutory clearances, to restart operations.

As the demand and supply mismatch is set to continue for some more months, the steel makers are actively considering an option of filing an affidavit in the Supreme Court (SC), with a plea for a price regulator to monitor the sharp movement of ore prices in e-auctions. They are also planning to file an application to Competition Commission of India, on the mine owners forming a cartel.

Seshagiri Rao, joint managing director, JSW Steel said, “What is disturbing us is the price fixing pattern followed by the miners. The prices of iron ore in the international market have come down from $147 a tonne to $123 a tonne and the rupee is stable. Prices in Odisha are flat and NMDC prices are around Rs 2,200 a tonne all over the country. Only in Karnataka have the miners have increased their base prices up to Rs 5,000.”

As a result of this price rise, the landed cost of iron ore at steel mills works out to Rs 7,000 a tonne, which is unreasonable, he said. Rao said it was mostly Category-B mines which had raised their prices.

“In addition to very high base prices, steel mills in Karnataka have to pay royalty and forest development tax, usually borne by miners in other parts of the country. There is need for urgent intervention by authorities to save the steel industry in Karnataka and half a million jobs,” he said.

The steel industry in and around Karnataka requires 36 million tonnes of iron ore annually. The SC in April 2013 allowed 115 Category-A and B mines to restart production. Till now, only 21 mines have resumed, with combined annual production capacity of 9.7 million tonnes.

Another nine mt yearly comes from NMDC, leaving a shortfall of 12 mt to meet the cap of 30 mtpa imposed by the SC.

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First Published: Mon, February 03 2014. 00:45 IST