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 Bans on iron ore mining and exports in India's top producing states
of Karnataka and Goa have choked the industry so hard that MMTC is
one of many firms exiting. Even if efforts to fully lift the bans
make it past the many bureaucratic and legal hurdles, iron ore
miners do not expect complete resumption of production until late
2014.
The bans, put in place as the government tried to clamp down on
illegal mining, have cut India's iron ore exports by around 85
percent, or 100 million tonnes, over the past two years. They have
also reduced foreign exchange earnings by more than $17 billion in
the same period, according to the Federation of Indian Mineral
Industries (FIMI).
The structural shift in India's iron ore industry could be a
blessing for other suppliers, as demand growth from top market China
slows and Australian miners Rio Tinto <RIO.AX> and BHP Billiton <BHP.AX>
ramp up output. It will also make it harder for India to regain its
spot as the world's No.3 exporter of the steelmaking raw material.
"It's pretty evident that there's lasting damage to the industry,"
said R. K. Bansal, a secretary general at FIMI. "But if the
government of the day at the state and central level, as well as
other authorities, stick their neck out and take decisions then this
paralysis can go."
Mining in Goa was banned in September 2012, freezing shipments that
reached about 50 million tonnes in the 2010-11 fiscal year. In
neighboring Karnataka, where the ban started in 2011, exports remain
frozen even though it was lifted in April. In both states, the bulk
of mining was done by private companies, which were accused of
mining outside lease areas and in excess of set limits.
MMTC was banking on business from Karnataka when it invested along
with Indian partners Sical Logistics Ltd <SICA.NS> and L&T
Infrastructure Development Projects in an iron ore terminal in
Ennore Port in the southern Tamil Nadu state.
"We think that at least in the next five to six years there will be
no exports of iron ore," said SM Babu, general manager at MMTC's
Chennai office. Instead the joint venture company hopes to tap
growing demand for coal-fired power plants in Tamil Nadu.
Only 16 out of 115 mines have resumed mining in Karnataka. For those
keen on returning, the bureaucratic hurdles can be overwhelming.
"There are about 30 or 40 companies whose quantities are so low that
they will never restart," said Basant Poddar, owner of Mineral
Enterprises Ltd, which has four mining leases in Karnataka but none
operating currently.
"For those willing, the issue is with forest clearances. The whole
process goes through about 50 levels or officers for stage one
clearance, and for stage two it's cut down to about 20."
On Monday, Vedanta Resources Plc <VED.L>, a London-based mining
conglomerate controlled by Indian tycoon Anil Agarwal, said its Sesa
Sterlite <SESA.NS> unit had resumed operations in Karnataka after
clearance from a court-appointed panel.
CHINA APPETITE WANING
Jiro Iokibe, analyst at Daiwa Securities in Tokyo, sees Indian iron
ore exports of 15 million tonnes next year, rising to 20 million
tonnes in 2015. This is well below the record of more than 117
million tonnes in 2009-2010.
Lower Indian supply has eased pressure on a market seen moving to
surplus given expansion by low-cost producers such as Rio Tinto, BHP
Billiton and Brazil's Vale <VALE5.SA> while growth in Chinese demand
eases.
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India's exports to China reached just over 10 million tonnes in
January-November, down 68 percent from a year earlier. <MTL/CHINA3>
"Definitely people are not depending now on Indian material," said a
trader in Shanghai who is among a few left selling only Indian iron
ore to Chinese mills. "Most traders have switched to mainstream
cargoes from Australia and Brazil and cargoes from India are going
at a discount of maybe up to $4 a tonne."
India's central and state governments, which put in place the
various bans under direction from a Supreme Court determined to
clamp down on illegal mining, appear keen on getting the iron ore
sector back on its feet.
"We have placed all the regulatory measures we have undertaken in
front of the Supreme Court so that we can resume mining operations,"
Prasanna Acharya, mines director in Goa, said in November.
The court has set up a panel that will determine a limit on Goa's
production. The panel is expected to submit an interim report by
February 15, but Acharya has said he does not expect a resumption in
mining before October at the earliest.
COLLATERAL DAMAGE
When the iron ore miners give up, so do businesses relying on the
raw material.
Out of the 53 sponge iron making plants in Karnataka with annual
production capacity of about 3 million tonnes, 19 have closed and 27
are operating at half their capacity due to a shortage of iron ore,
said Deependra Kashiva, executive director of the Sponge Iron
Manufacturers Association.
India is the world's top producer of sponge iron, an alternative
steelmaking ingredient that is economically viable where natural gas
is abundant and cheap.
At Sesa Sterlite's 7 million-tonnes-per-year mine in Codli Village,
about 50 kilometers east of Goa's capital Panaji, machinery operator
Lakshdeep Asrekar is among a few who still report to work.
Asrekar is lucky, because many have lost their jobs, with industry
group FIMI estimating job cuts at 200,000 across Goa and Karnataka.
"We come and start our machinery and dumpers and keep them running
for 15-20 minutes so that they are in working condition," said
Asrekar.
(Reporting by Manolo Serapio Jr. in
Singapore and Krishna Das in Goa state; editing by Michael Urquhart)
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