Until six years ago, the dusty crumbs derived by extracting iron-ore lumps from the earth were an unwanted industrial waste.
Giant mounds of ‘fines’, as they are called, would lie abandoned at mine sites while iron-ore lumps went off to Indian steel producers.
Then, in 2001, iron-ore fines suddenly became a precious commodity. Demand for India’s fines exploded as China’s steel production started to grow 25% each year and it began importing the fines, packing it together to be as strong as lump. Riding its northern neighbour’s steel boom, Indian iron-ore exports soared 143.2% from 37 million tonnes (mt) in 2001 to 90mt in 2006. Most of it was fines.
Still Indian steel producers had little interest in iron-ore fines—until now.
As ministers and other stakeholders examine India’s new proposed mineral policy, a rivalry is brewing between steel makers and miners over the future of India’s iron-ore exports. Steel makers generally want to ban or reduce exports so they have better access to the resource most key to their manufacturing. But exporters say that curbing export would be deadly to the lucrative industry they have built on these piles of fines. Starting this month, the government slapped exporters with a Rs300 per tonne duty charge.
In 2005-06, India produced 156mt of iron ore, of which 89.27mt were exported. Some 75% of iron-ore exports consist of fines. “Fines were a headache until exports to China picked up. In India, there is still no demand for fines,” said Dinesh Singhi, managing director of mining company BMM Ispat Ltd. He recalled spending money to transport fines 8km away from his mining site, located in the eastern border district of Bellary in Karnataka.
Today, Singhi exports 2mt of iron ore to China, 80% of it being fines. He supports the mining ministry’s stance that miners should be allowed to continue exports.
The steel ministry, on the other hand, is pushing for captive mines for steel producers. A committee headed by Planning Commission member Anwarul Hoda which drafted National Mineral Policy primarily to boost investments in the sector recommends captive mines only for companies set up before July last year. But it also said that iron-ore mines must be utilized not within India, but within the state. Many states have lured billions of dollars in steel investments with high hopes of boosting employment and infrastructure. “It’s a fight over resources,” said Ahmed Shah Firoz, an independent steel strategist. “It’s important to have a proper market for both mining assets and minerals. So long as there are margins, companies will try to grab them. But what we require now is a proper evaluation of assets.”
Thus, the war for the iron of mines is turning into a war of statistics. India’s iron-ore reserves stand at roughly 23 billion tonnes. The Indian Bureau of Mines is expected to take the reserve higher to 25.25 billion tonnes this year.
But steel producers say this statistic is not sound because the proven reserve is only about 7.5 billion tonnes; mining is classified under categories such as proven, inferred, probable and possible.
And nearly 5.5 billion tonnes are already leased and nearly 10 billion tonnes have been closed in the western ghats for environment reasons. “There is a shortage of iron ore. Why can’t the states simply give mining leases to those who have signed MoUs,” said an executive, referring to the MoU signed between states and steel investors.
The mining sector was opened up in 1993 with 50% investment through the Foreign Investment Promotion Board. By 2000, 100% FDI was allowed except in diamond and precious-stones mining. Last year, the entire sector was opened up.
But out of the Rs4,044 crore proposals signed, it has attracted only Rs350 crore. Many investors await land and access to mines.
At present, iron-ore mining is dominated by small and medium enterprises (40%) followed by captive mine owners, who have a 25% share. Government-owned mining firms, such as National Mineral Development Corp., have 14%.
This has left steel players fighting for the remaining captive mines, partly so they are guaranteed a source of iron ore but also because of the cost differential.
At present, companies with captive mines can extract iron ore at roughly Rs300 a tonne, and steel companies without mines have to pay up to Rs2,400 a tonne. The price benchmark went up after Chinese steel giant Baosteel struck a deal with Brazilian company CVRD to buy iron ore with a 9.5% price hike on 1 April.
Indian companies which own their own mines include the Steel Authority of India Ltd, Tata Steel Ltd and Jindal Power & Steel Ltd.
But the mining ministry says that while India has geological potential in some 5.70 lakh sq. km of land, less than 10% of this has been explored. “The idea of the National Mineral Policy is not just about iron ore. There are 60 other minerals that are waiting to be tapped,” said an official who did not wish to be named.
The new policy seeks to segregate reconaissance, prospecting and mining as separate economic activities and open up large areas for mining investments.
According to a Metal Economics Group report, global spending on exploration is nearly $500 million, while India spends about $5million (Rs21.5 crore), which is mostly focused on coal and oil.
“The demand for steel is cyclical. There is a boom now, so everyone wants a share of iron ore,” said another government official.
Navin Vohra, associate director in consultancy firm Ernst & Young, however, disagreed. “If we encourage exploration through transparent policies and incentives, we can increase iron ore reserves,” he said.
But caught in the middle of many interests, Singhi is unsure of the future. He said the commerce ministry has given him permission to import equipment at zero cost for his 100% exported-oriented pelletization unit, an intermediary product in steel-making that uses fines. Now, the finance ministry has imposed an export levy, which he said will affect his business as he is investing Rs450 crore in the project. “Because of China, I am able to foray into value-addition now. But it appears no one in India ia ready to pay market price of iron ores.”