India throws USD 15 billion lifeline to world iron ore miners
Reuters reported that India's efforts to clamp down on illegal mining have handed a USD 15 billion lifeline to global iron ore giants and there could be more to come.
Steps taken by federal and state authorities to clean up the mining and export of iron ore have shut down output in 2 key producing states, slashing shipments and forcing steel mills to import a raw material the country has in abundance.
Now the Shah Commission, whose report on top exporter Goa led to the state government's ban on mining in September, has turned its attention to the last major iron ore producing state of Odisha.
The exit of the world's third largest iron ore exporter has been perfectly timed for miners in other countries seeking alternatives for their growing supplies as appetite from top buyer China slows.
The world's biggest producers Vale, Rio Tinto and BHP Billiton have taken some of India's market share in China, Japan and South Korea and now are even eyeing exports to their erstwhile competitor.
Mr Graeme Train commodity analyst at Macquarie in Shanghai said that "It will be a huge bonus for big miners. There'll also be a premium emerging for lower grade ore and India's absence will drive Chinese interest into Fortescue type products."
India's campaign to end illegal mining which authorities said that it has cost Goa and Karnataka states around INR 510 billion in lost revenue in the last decade has cut its iron ore output by more than 20% in the year to March and its exports by almost double that.
Analysts said that annual exports, which in the past decade peaked at nearly 106 million tonnes, may dwindle to as low as 5 million tonnes over the next year.
According to report, the roughly 100 million tonnes of lost exports at the current average price of around USD 110 per tonne and another potential 30 million tonnes of imports of higher quality ore at around USD 140 per tonne will cost India USD 15 billion, money that goes straight into the pockets of foreign miners picking up the slack.
India's iron ore exports to China fell to less than 300,000 tonnes in October the lowest in at least 2 decades after the ban in Goa. That followed a mining ban in Karnataka in 2011, after shipments there were halted a year earlier.
Goa's once bustling mining hubs have turned into ghost towns with scores of empty trucks parked by the roadside. Trains some still loaded with ore are stopped on the tracks.
Mr Pritesh Gawas a 25 year old worker at Sesa Goa's Sonshi mine said that "We have been sitting idle for over 2 months now."
Chinese customs data said that in January to October, India's shipments to its biggest market stood at 32.6 million tonnes down nearly half from a year ago, with South Africa edging it out as the number 3 supplier.
India as buyer
The flipside is that India is also starting to ship in iron ore in significant quantities.
Mr Basant Poddar VP of the Federation of Indian Mineral Industries said that India has imported 9 million tonnes of iron ore so far in the fiscal year that began in April and could ship in 15 million tonnes for the full year.
Mr Poddar said that "It is a sad situation that we cannot mine in our own country legally and supply to our own domestic steel industry."
He said that importers include big producers Essar Steel, Bhushan Steel and JSW Steel.
He added that for the next fiscal year, India's iron ore exports may be no more than 15 million tonnes while imports could climb to 20 million tonne to 25 million tonnes, making the country a net importer for the first time ever and hurting the competitiveness of its steel producers.
Mr Gunjan Aggarwal senior consultant at research firm CRU in Mumbai said that "Being an iron ore rich country likes India it doesn't make sense to be producing steel on the basis of imported iron ore. It doesn't work out economically for the steelmakers."
Next state targeted
The mining bans in Goa and Karnataka which at one point shut all mines in the 2 states could now spread to the eastern state of Odisha which was visited by the Shah Commission earlier this month.
Mr Rajesh Verma state Steel and Mines Secretary said that Odisha's state government has fined several mining companies nearly INR 680 billion for excessive mining of iron ore over the past 10 years.
Mr Verma said that none of those fined has been paid up so far.
TATA Steel Ltd and Aditya Birla Group owned Essel Mining dispute the allegations.
A major difference from Goa and Karnataka is that Odisha's ore is high grade and intended for the domestic steel industry rather than export.
Mr Aggarwal said that if mining in Odisha is stopped, Indian steelmakers may need to import 30 million tonnes of high grade ore a year, adding that overall exports could fall to as low as 5 million tonnes.
India's federal government maintains the way to crack down on illegal mining is through better enforcement of existing laws, higher export duties and improved tracking of transport.
The government instead decided to impose a 30% duty on all iron ore exports despite opposition from the mines ministry. It could raise this further or hike rail freight rates, where it already charges a much higher rate for ore intended for export.
In Karnataka, the opposition run state government banned shipments in 2010 in response to pressure from the federal government over illegal mining. Then Mr BS Yediyurappa CM resigned after being implicated in a USD 3.6 billion illegal mining scam.
Source - Reuters