Mining Controversies, Lopsided Policies Hurting India Steel Industry

While China has already managed to install excess steelmaking capacity, India is struggling to meet its internal demand, which is set to grow by about 8 percent in 2012. There are many reasons for India’s inability to meet its own internal consumption:

1) Expected shortage in raw materials supply

2) Uncertain economic outlook

3) A major scam involving mines in some parts of the country

4) Uneven import-export policy

There is a real chance that the steel script for India could go wrong if the government does not implement remedial measures soon. Steel producers, industry experts and research advisory groups have sounded enough warning bells. There are still many hurdles in the path that steel producers need to clear to help India achieve its set goals.

One of them is a drop in production in the wake of the illegal mining scams. Industry experts fear raw material for steel production, especially iron ore, in some states will soon run out. The reason: The scam has led to a freeze or curtailment of further mining activities until investigations are over.

India is a very large exporter of iron ore but this too is expected to fall to a new low this year, by about 25 percent, because of shortages in the Indian states of Karnataka, Odisha and Goa, high export duties and differential railway freight. The governments of Odisha and Goa have restricted the movement of ore. The government of Goa is not giving clearance to lift dumps containing 48-52% iron-grade ore. The State of Odisha accounts for about one-third of the country’s iron ore output.

The mining scams seem to have become the biggest headache for the Indian steel sector. Legal cases in India have a tendency to drag on for years. The biggest mining scam has taken place in the State of Karnataka, which accounts for at least 24 percent of the country’s steel production. The scam here involving the former chief minister and others led to a clampdown on mining activity in Karnataka. But letting the government-owned National Mineral Development Corporatin (NMDC) extract a maximum of one million tons of iron ore per month has alleviated the situation somewhat.

While investigations are ongoing, private steelmakers in this state are still having sleepless nights, since there are only about two months of iron ore supplies left. One news report here suggested that over half of the sponge iron makers in Karnataka had already shut shop, while the rest have approached the Supreme Court of India with the plea that iron ore mining be resumed as early as possible.

Iron ore for now is available in stockpiles, but these are of low grade. And as any industry expert will tell you, low-grade ore means slow damage to the blast furnaces. So, if no relief comes from the Court soon, the steel industry (at least in Karnataka) will be severely affected, cutting into the nation’s overall steel production. The total steel capacity in Karnataka is 16 million metric tons, and of that 3 million tons is sponge iron. Most of this sponge iron production has been shut down and steel plants are running at low capacities.

There is some hope on the horizon though, because last month the Indian Mines Minister Dinsha Patel had told reporters that he believed iron ore production by privately owned miners in Karnataka state would most likely resume in July 2012.

BY Sohrab Darabsha