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The crisis seems to be far from over for the mining industry in Karnataka, Goa and Odisha, the three major iron ore producing states in the country. Though some relief came for the industry in Karnataka last year and again in April this year with the Supreme Court allowing partial resumption of mining operations, normalcy in the sector may not return anytime soon.
Besides procedural issues, mere restarting mining operations can take over a year. India, which had been the third-largest iron ore exporter in the world, is set to lose its tag and become a net importer of the material this financial year for the first time in recent times.
The Supreme Court had banned mining in Karnataka in July 2011. Goa, which accounted for more than half of iron ore exports from India, is still awaiting a verdict from the apex court. The court had banned mining in Goa in September last year on a petition filed by Prashant Bhushan after a judicial commission, headed by justice M B Shah, exposed a Rs 35,000-crore scam involving top mining companies, politicians and bureaucrats. (UNEARTHING PROBLEMS)
The apex court ordered a probe by a central empowered committee. The Goa matter has been adjourned for a hearing this July, but Christopher Fonseca, general secretary of the All India Trade Union Congress (Goa), and a member of the Goa Mining People's Front, says the mining industry that had an annual turnover of Rs 20,000 crore has been virtually wiped out.
In Odisha, too, the state government banned export of iron ore in October 2012. It said iron ore mining could be done only for captive use. Later in November, it came down heavily on the mining industry when it imposed a fine of Rs 50,000 crore for illegal mining on companies including Tata Steel Ltd, Essel Mining and Industries Ltd and the state-owned Orissa Mining Corp Ltd.
India's total iron ore exports fell 68.27 per cent to 16.35 million tonnes (mt) during April 2012-January 2013, against 51.52 mt in the corresponding period the year before. It is estimated that the country lost about $10 billion (Rs 54,810 crore) worth of iron ore exports last financial year. There has been a constant decline in iron ore exports since 2009-10, when exports stood at 117.72 mt. This came down to 97.6 mt in 2010-11 and 61.7 mt in 2011-12.
The ban on mining had repercussions on the steel industry as well, since iron ore is the main ingredient in steel making. Steel imports jumped 14.6 per cent 2012-13 from just about one per cent in 2011-12, while growth in export of finished steel slowed down to 14.3 per cent in 2012-13 against 32.56 per cent the year before. Domestic steel production grew by just 2.5 per cent in the last financial year.
Anjani Agarwal, partner, Ernst and Young (E&Y), says steel companies have been squeezed from various sides. "The companies are unable to pass on the increase in iron ore and coking coal prices to consumers. The margins are under pressure; they have declined by 6-10 per cent in the last few years." There has been capacity addition, but production has not matched the pace because of a shortage in raw materials, he adds.
Little wonder that no fresh investment was made in the steel sector. Companies are only adding capacity at plants that have the scope of expansion. The global scenario is little vague, but the demand in the steel industry is expected to pick up with the revival of the US and Japanese markets, says Jagannadham Thunuguntla, research head, SMC Global.
E&Y's Agarwal says India used to export about 50 per cent of iron ore production, but after the ban in three states, production has taken a hit. Global mining companies such as Vale, Rio Tinto and BHP Billiton have gained advantage on the back of fall in iron ore exports from India.
The World Steel Association, however, expects the sector to bounce back in India with domestic demand to grow 5.9 per cent to 75.8 mt in 2013 against 2.5 per cent growth last year as monetary easing is expected to support investment activities. In 2014, growth in steel demand is expected to further increase to seven per cent.
R K Sharma, secretary general, Federation of Indian Mineral Industries, is, however, sceptical. He says it is very unlikely that the situation would improve in the near future. Sharma says the Supreme Court judgement that has allowed partial resumption of mining in Karnataka has come at the right time. The applications for new leases, as well as the renewal of leases, will now be processed.
According to Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel, the Supreme Court order on Karnataka mines will have a positive impact on the steel sector. The order is a breather to the steel industry in the region and had come at a time when the industry was at the brink of collapse due to non-availability of iron ore.
"As Indian economy is expected to get back to the growth mode, the opening up of mining will enable raw material linkages for further investments in the steel sector in the Karnataka region," Rao adds.
