Iron ore mine auction delay may hit steel production in 20202 min read . Updated: 21 May 2019, 11:10 PM IST
- The dearth of domestic iron ore supply will necessitate an increase in the import of iron ore mix
- The initiation of the auction process was delayed till the latter half of 2019 because of the Lok Sabha elections
MUMBAI : Production at non-integrated steel companies, which do not have access to captive iron ore resources, will be disrupted in 2020 if iron ore mining auctions are delayed.
A delay in the auctions will affect companies such as JSW Steel, Rashtriya Ispat Nigam Ltd, and those that are either under stress or have been referred to the National Company Law Tribunal (NCLT), according to a report by credit rating agency India Ratings.
The initiation of the auction process was delayed till the latter half of 2019 because of the Lok Sabha elections. This could hinder the timely auction, as the process takes three to six months to complete.
The iron and steel sector has a total fund-based banking credit of ₹2.85 trillion and most players in the industry do not have assured iron ore access.
The dearth of domestic iron ore supply will necessitate an increase in the import of iron ore mix. This will potentially lead to an increase in the cost of production, the report said.
Besides, operations of smaller companies that are away from ports and operate in the landlocked region could be disrupted as they are primarily dependent on domestic merchant miners for iron ore.
Steel production would be significantly affected if the auction of the mines that would complete 50 years of operations by March 2020 was materially delayed, said the India Ratings report. Consequently, the credit profile of merchant miners and thus non-integrated steel players could come under stress.
The licences of about 288 merchant mines will expire by March 2020. Of these, 59 mines are under operation, the majority of which are iron ore mines in Odisha and Karnataka with around 85 million tonnes of approved annual capacity. The agency estimated that around 60 million tonnes of the actual production of iron ore from these mines could be disrupted.
India also has a poor auction track record. Operations have started in only a handful of the 88 iron ore deposits that were sold in the last major auction. The delays in starting operations were primarily because of the delays in obtaining environmental, wildlife and forest clearances. The G2 resource prospection, the third stage of geological assessment, is a pre-requisite for auction, but some of these mines may not have it. JSW Steel has been among the few players that have been able to start production from mines acquired under the auction.
Government agencies may plan to extend expiry deadlines for mines along with the awarding of licences, to ensure limited disruption to volumes, said an industry expert who did not wish to be named. “When the auctions do take place, steel companies will be willing to be pay top dollar for the resources. We saw the same happen with cement companies who wanted access to limestone resources," said the expert mentioned above.
India Ratings also said that a clear, timely instruction on the settlement/removal/transfer of infrastructure of the erstwhile mine owner could speed up the resumption of mining activity. Additionally, operational mines could take less time to resume operations post auctions as against undeveloped mines.
Besides, India’s biggest miner, NMDC Ltd, may be able to increase the volumes to 4-5mtpa with evacuation facilities being placed at its captive mines. Its 7mtpa Donnimalai mine can restart operations after the settlement of a dispute between the government agencies on premium payment, India Ratings said.
The price of imported iron ore is at least 150% than of domestic ore. Given that import is an expensive option, the agency said that import volumes were unlikely to go up substantially.