A Supreme Court ruling has prevented mines from selling already mined ore, which analysts had expected will provide revenue in the October-December quarter to companies.  (A Supreme Court ruling has prevented mines from selling already mined ore, which analysts had expected will provide revenue in the October-December quarter to companies. )
A Supreme Court ruling has prevented mines from selling already mined ore, which analysts had expected will provide revenue in the October-December quarter to companies.
(A Supreme Court ruling has prevented mines from selling already mined ore, which analysts had expected will provide revenue in the October-December quarter to companies. )

Mark to Market | Uncertainty over iron ore mining to continue

It may lead to the further tightening of iron ore availability and support prices

When the Goa government asked iron ore mines to shut down in September, analysts looked at the brighter side. The government had said that mining could resume for the rest of the season after verification and clearance by a committee. Moreover, iron ore that had already been mined could be sold after an inspection by the government. That was interpreted by some as a positive signal as mines are anyway not operational during the monsoon, and selling ore from stockyards would mean continued revenue for the companies.

But the Supreme Court ruled last week that the ban on mining would continue for a month, and referred the issue to a central empowered committee (CEC) to file a preliminary report within this period. It also prohibited any movement of ore from mines or stockyard.

Since the Goa government has already suspended mining, the court order does not change the current situation by much. However, what it does is prevent mines from selling already mined ore, which analysts had expected will provide revenue in the October-December quarter to companies such as Sesa Goa Ltd.

Moreover, in the longer run, the Supreme Court’s intervention adds a layer of uncertainty to the resumption of iron ore mining in Goa. If CEC finds fit to suspend mining and sale of already mined ore until it undertakes a detailed enquiry, it will be bad news for iron ore miners, including the listed Sesa Goa. However, the miners can get some short-term relief if they are allowed to sell already mined ore.

The suspension coincides with a dull phase for the iron ore mining industry globally as a slump in steel demand is leading to lower demand for ore. Last week, Brazil’s Vale SA, a large iron ore producer, said it will suspend production at two iron ore pellet plants in phases. These two plants contributed 18% to the total pellet production of the company in the first half of 2012. Vale is not alone and as steel production slows in response to slowing demand, iron ore producers are curtailing output and even expansion plans.

Global steel production in 2012 till August had risen by a measly 0.9% year-on-year, according to the World Steel Association. Iron ore prices have fallen by 22% since early-July, according to Bloomberg data for Chinese iron ore imports, but they have also recovered by 20% from their lows of August.

If Goa is unable to export iron ore for a prolonged period, it may lead to the further tightening of iron ore availability and support prices. That may help global iron ore producers, but means little to their Indian counterparts. Sesa Goa’s investors did not get affected by the top court’s action as the share was down by 0.58% on Monday compared with a 1.21% decline in the broad market. A recovery in ore prices, eventual resumption of mining in Karnataka, and the proposed consolidation of Vedanta group businesses with it, could be some of the mitigating factors working in its favour.

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