Karnataka sponge iron makers starved for ore

Most sponge iron manufacturers in Karnataka are facing a threat of closure, thanks to the shortage of iron ore supplies to their mills.

There are as many as 51 medium scale units, with a combined production capacity of 12,600 tonnes per day (4.5 million tonnes per annum), able to work at a utilisation rate of 25 per cent everyday. As against the daily requirement of 40,000 tonnes of iron ore, these units are able to procure only about 10,000 tonnes per day that is, about 25 per cent. This is mainly because of the cut in the extraction of iron ore as a result of the ban on the export by the state government. Also, most of these units procure iron ore from state-owned Mysore Minerals Ltd (MML), which has been following a differential pricing mechanism, said T Srinivas Rao, president, Karnataka Sponge Iron Manuacturers’ Association (KSIMA).

 

“Sponge iron makers in Karnataka are able to produce only about 2,500 tonnes per day due to the shortage presently. We are largely dependent on MML for ore. But, they do not give us priority while supplying iron ore. Instead, they supply ore to large steel companies,” Rao told Business Standard.

He alleged MML has been following a differential pricing system for large steel companies and sponge iron makers. It supplies ore to big companies at 50 per cent of the market price ,while charging international market rates for the same to the sponge iron units. This is because MML has long-term supply contracts with large steel companies like JSW and Kalyani Steels.

The Karnataka-based sponge iron units contribute 20 per cent of the national production, at 22 million tonnes per annum.

“MML’s policy stipulates an allotment of about 30 per cent of its annual iron ore production to medium scale steel manufacturers. But, it has not been honouring this policy. Instead, it favours large steel mills,” Rao said. The medium-scale sponge iron manufacturers get only 5-10 per cent of the allotment, of the 30 per cent allocation from what the state-owned mineral corporation mines, he said.

“This discriminatory policy of MML has pushed sponge iron ore industry to the brink and of the 50 units, at least seven have wound up and a majority of the operational units have become non-performing assets,” Rao said.

When contacted, Sriraman, managing director, MML, said, “We have been conducting electronic auctions periodically and 15 companies buy from us. There is no provision for subsidising the medium scale firms. They have to buy at the prevailing market prices decided by the government.” During the auctions in February this year, the MML sold 59-60 Fe grade iron ore at Rs 2,250 a tonne. Every year, it sells about 350,000 tonnes through e-auctions, he said.

Rao urged the state government to consider the applications of sponge iron units for captive mining leases, for which they had applied about six years ago.

He also urged the government to allot a minimum of 50 per cent of iron ore mined by the mining lease holders to medium scale industries as a majority of mine owners export iron ore.