Updated CRU View - Bellary Mining Ban

The view from CRU analysts:

The 90% government owned NMDC has been allowed to operate mines as per our assessment earlier and domestic iron ore prices in Eastern India have also moved up.

The steel sector in Southern India has been severely impacted due to an iron ore shortage. It is having a serious impact for end use sector such as the automotive industry which is dominent in Southern India.

Supreme court’s ruling on 5th August 2011

The Supreme Court has allowed NMDC to operate its mines in Bellary, Karnataka, to produce 1Mt of iron ore per month to meet steel industry domestic requirements. However other miners in Bellary cannot restart production and iron ore from the region cannot be exported.

NMDC has two iron ore deposits in Donimalai and Kumaraswamy. Donimalai has a capacity of 400kt/m and Kumaraswamy can produce 200kt/m.

Though the courts have allowed NMDC to mine 1Mt from these two deposits, it will only be possible to extract 600ky/m.

The Kumaraswamy mine was not producing before the Supreme Court’s 29 July ruling due to a separate case in Karnataka High court. The Supreme Court’s ruling of 5 August 2011 has removed that restriction imposed earlier by Karnataka’s high court.

The court also sought within three months a macro-level environment impact assessment of the region from the Indian Council of Forestry Research and Education in consultation with the Environment Ministry and other expert bodies.

However, NMDC’s production in Bellary cannot offset the massive ore shortages being faced by the industry.

Following the ban in Bellary, JSW has started sourcing ore from NMDC’s mines in Chhattisgarh. JSW is getting approximately 2-3 rakes per day from NMDC’s Bailadila mines. Each rake has ore carrying capacity of 3700t. This arrangement will continue in addition to ore supplies from NMDC’s mines in Bellary.

Iron ore sourcing from Orissa/Jharkhand by mills in Karnataka is being hindered by:

1. Landed lump iron ore cost would be high for sponge iron and foundry grade units in Karnataka. A lack of sintering capacity in these units makes them especially vulnerable to lump ore price trends.

2. Steel companies like JSW, having a much higher proportion of fines in their sourcing, will find it manageable to source material from Orissa. JSW’s sintering capacity is 12.2Mt and its pelletising capacity is 4.5Mt in Tornagallu, Karnataka.

3. Applications for trading licenses to source ore from Eastern India (Orissa, Jharkhand) take time to be processed. Normally it takes 2-3 months for the license to be processed.

Going Forward

• Immediate improvement in ore shortages cannot be resolved in Karnataka. The Supreme Court will wait for the macro-level environment impact assessment report of the region before taking a further decision.

• But, given the severity of the current situation, it might be possible for it to admit a plea on behalf of the impacted companies to fast track a resolution.

• In the meantime, the pressure on Indian ore supply for export looks set to intensify. This will lend some support to prices notwithstanding the wider concerns currently prevailing in the global economy.

A story about this issue appeared on the STI website last week. To view it click here: http://www.steeltimesint.com/news/view/indian-supreme-court-bans-two-thirds-of-karnatakas-ore-production/steel-news/