Iron ore production likely to drop to 140 mt in FY13

The ban on mining in Goa has added to the problems of the industry and the production could drop to the levels seen in 2004-05

The recent Goa government’s move to ban iron ore mining is likely to hit the production of iron ore in the country during the current financial year. The domestic production is likely to touch 140 million tonnes in 2012-13, an 18% decline year on year. A similar production levels were seen during 2004-05 and the production had peaked in 2009-10 at 220 million tonnes (mt).

During the fiscal ended March 2012 the domestic production of iron ore was estimated at 170 mt, a decline of 20% year on year. The country exported 60 mt in FY12, down 39% year on year. The production is likely to be affected due to ban and slower MoEF clearances. After Karnataka and Goa, the ban may be extended by other states as well, a Citi Research report said.

“We expect domestic steel production to grow at about 8% CAGR between FY05-13 to 78 million tonnes. Domestic ore should suffice to meet India’s requirements (about 125 mt). But exports could potentially decline from 60 mt in FY12 (35% of total production) to less than 30 mt in FY13 if the mining ban in Goa stays,” analysts from Citi Research said.

The recent mining ban announced in Goa could wipe out about 30 million tonnes from the seaborne market (about 1 billion tonnes), partly offset the impact of about 50 mt of new supply expected to come on-stream globally in second half of 2012 calendar year and provide near term support to global prices.

India’s share in the seaborne market could decline from 13% in FY10 to around 3% in FY13. An increase thereafter would depend on the fate of the Goa mining industry.

The government of Goa suspended mining after the Shah Commission Report was tabled in Parliament on September 12, 2012. This was followed by the suspension of environment clearances for all 93 mining leases by the Ministry of Environment and Forests (MoEF). The ban in Goa follows a blanket ban imposed by the Supreme Court (SC) in Karnataka in August 2011.

It is unclear how long the process of obtaining fresh environment clearances is likely to take. If exports out of Goa are not resumed this year, India’s total exports in FY13 could drop to about 30mt (12mt in 1QFY13).

However, the suspension of mining operations will not affect trade and transportation of
ore already mined and existing in the lease hold area, in transit or stocked at the port.

The SC has recently allowed resumption of mining in 18 Category A mines in Karnataka. Goa and Karnataka together accounted for about 36% of India’s production and about 65% of India’s exports prior to the ban.

The government of Orissa has also planed to e-auction iron ore from next year (as is
being done in Karnataka) to bring more transparency. The state government has constituted a five-member panel headed by principal secretary of the steel and
mines department to work out the modalities.

India’s iron ore reserves are estimated at 7 billion tonnes. Most of India’s iron ore production (over 95%) is in the states of Orissa, Karnataka, Chhattisgarh, Goa and Jharkhand. The public sector companies like NMDC and SAIL produce about 25-30% of India’s production. The balance is from the private sector including companies such as Tata Steel.

Iron ore fines account for 55-60% of India’s iron ore production and the balance is in the form of lumps. The domestic industry consumes around 90% of the lumps produced and a large proportion of fines are exported. Of the total iron ore produced (in
FY10), about 25% is greater than 65% Fe grade, 46% is between 62-65% Fe and the balance 29% less than 62%.