Steel giants turn cautious on iron ore mine bids amid high premiums, remote locations
Of 24 auctioned mines since 2024, only four were acquired by large steelmakers. Key factors influencing bids include proximity to steel plants and cost-effectiveness strategies.
Mumbai: India’s biggest steelmakers have tamped down their bids for iron ore mines over the past two years as aggressive bid premiums and the remote location of some of the recently auctioned assets clouded the benefits of acquiring them.
Of the 24 mines auctioned since the beginning of 2024, only four were acquired by large integrated steel companies, according to Mint’s analysis of data from Big Mint, a market intelligence firm.
ArcelorMittal Nippon Steel (AMNS) India successfully bid for two iron ore blocks in Chhattisgarh in March this year, paying premiums of over 150%. JSW Steel snapped up a block in Goa in November 2024 at a premium of 92%. Jindal Steel acquired a mine in Odisha in June this year for premium of 117.5%.
Together with Tata Steel, Jindal Steel and the Steel Authority of India Ltd (SAIL), they make the top five integrated steel companies in India.
“Recent iron ore auctions have witnessed selective participation," said Dhruv Goel, chief executive officer at Big Mint. “Large steelmakers have already secured blocks awaiting development. Some mills avoid auctions where block sizes are too small, or grades don’t match their requirements."
Additionally, the proximity of a mine to a steel plant is a critical criterion, said Suman Kumar, vice president for metals and mining at financial services firm Philip Capital.
Producing 1 tonne of steel requires about 1.6 tonnes of iron ore. If the plant is far from the mine, iron ore transportation costs become very high, said Kumar.
Distance is less of a problem for merchant miners, who mine and sell the ore, Kumar added. Of the 24 iron ore blocks auctioned, five were in Rajasthan, which has no steel plants or blast furnaces. All five blocks in Rajasthan were acquired by merchant miners including Terroso Quartz Pvt. Ltd, Pacific Industries Ltd and Win Ferro Alloys Pvt. Ltd.
Cost-effective strategy
Top steelmakers Tata Steel and JSW Steel have been vocal about not aggressively bidding for iron ore mines and want to have a cost-effective strategy.
“A key consideration for participating in auctions is determining how much iron ore we want to keep as captive versus how much we can procure from the market," T.V. Narendran, managing director of Tata Steel, said on a recent earnings call. “If the bid premiums are very high, then it really doesn't make sense to have 100% captive because you can get it cheaper from the market."
Bid premium refers to the extra amount that a company offers to pay the government over and above the base price or royalty for every tonne of ore they extract.
Tata Steel presently procures all its iron ore from legacy captive mines. Several of these mine leases expire in 2030, when the company will have to either bid for more captive mines or meet some of its requirements by purchasing iron ore from the open market.
Public sector undertaking SAIL also meets all its iron ore requirements from captive mines.
Tata Steel, JSW Steel, SAIL, AMNS India and Jindal Steel did not respond to Mint's email seeking comments.
Analysts at PL Capital said in a note dated 12 September that JSW Steel, learning from past mistakes, has refrained from aggressive participation in recent iron ore mine auctions, where premiums have exceeded 100% and would significantly increase the overall cost of production.
JSW Steel surrendered the Jajang iron ore block in Odisha last year due to the cost of operation being uneconomically high. It had acquired the block in 2020 at a 110% bid premium.
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