The lifting of ban on iron ore mining in Karnataka by the Supreme Court is unlikely to have an immediate benefit to steel producers in the state. A report says that 12 of the 18 mills still need to secure several statutory approvals before starting production.

 

Steel producers in the state have been hit by non-availability of quality iron ore which has led to reduction in capacity utilisation. E-auctions, the route through which iron ore is sold in the state as per a Supreme Court order, are conducted by the monitoring committee. But prices at e-auctions are high due to shortage in the state.

 

Within the next two months nearly 2.31 million tonne of iron ore from Category-A mines will ease the situation in Karnataka. Among the listed steel producing companies that will benefit from the removal of the ban are Kalyani Steel, operating at 40 per cent, and JSW Steel, which is operating at 80 per cent of its capacity. The order could not have come at a better time especially with iron ore inventory in the state reaching one month’s consumption. Steel producers were intermittently resorting to imports or procuring the ore from Chattisgarh and Orissa.

 

These companies have been paying a higher price for an inferior variety of iron ore at a time when iron ore prices globally are at a three-year low. A sharp reduction in demand from China and an inventory pile-up have impacted the fortunes of iron ore mining companies across the globe. Iron ore inventory in China has shot up by 46 per cent to 100 million tonne. As a result, iron ore prices globally are at a three-year low.

 

Taking advantage of low supply, the government-run NMDC increased iron ore prices in the range of 8-13 per cent last week. Lifting the ban will ultimately result in lower iron ore prices but till such time, NMDC and other producers in the state will try to capitalise on the situation.

 

However, for the steel sector, an increase in production from Karnataka will come at a time when the sector is reeling under the pressure of low prices caused by higher imports. India’s finished steel imports have jumped by 53.3 per cent to 2.88 million tonne in the first four months of the current fiscal. Higher imports were on account of price differential between global prices, which breached the $600 per tonne mark while domestic prices were at $750 per tonne.

 

Huge global inventory at a time when India’s demand for the metal is growing steadily is likely to attract further imports. Increased production from Karnataka steel producer will only add to the supply keeping prices depressed.(Source: Business Standard)