 "Output cap, scaling up challenges for us: R Kishore Kumar")
Producing under a cap imposed by the Supreme Court’s empowered committee, iron ore miners in Goa have put issues relating to taxation, high logistics cost and production restriction in front of the government. In an interview with Jyoti Mukul & Megha Manchanda, R Kishore Kumar, chief executive officer (iron ore), Vedanta Ltd, says the company is concentrating on cost-efficiency. Edited excerpts:
How important is it to lift the production cap, especially when the market is also not good in terms of demand pick-up?
The most important challenge facing the industry is freedom to produce. In Goa, the production used to be 40 million tonnes (mt). The Supreme Court-imposed cap is 20 mt. Vedanta was producing 14.5 mt in Goa; now we are producing five mt because of the empowered committee (EC) cap. Most of the limit in the state gets exhausted by November-December. We believe companies that have exhausted the EC limit should be given higher limits because we cannot produce for a few months and then not produce. There are companies that have a mine that may not be ready for production in the near term. So, those caps are lying unused. We have appealed to the state government to raise our limit if it gets exhausted by November-December.
We will achieve our EC production cap of 5.5 mt in Goa and 2.29 mt in Karnataka. We have appealed to the court to consider increasing the cap.
How do the prevailing prices for iron ore look?
Iron ore prices will remain soft in the near term because these are driven by steel demand, and the steel market is in a glut. Even high-grade iron ore is in significant oversupply. In the medium to short term, there will be softness in prices. In April-May, there was a spurt but prices cooled subsequently. We can’t focus as much on price as much we can on cost. The world has reacted well to the oversupply by managing their cost structures. All the players have scaled up volumes and brought cost down by 50-60 per cent. We have done this in India.
How did you bring cost efficiency to your company?
Logically, the first thing a company does is to bring scale, so we have managed to achieve our empowered committee’s production limit. We also brought down costs in logistics, mineral quality and beneficiation, managing fixed cost. We have also embraced technology. Internal efficiencies have been tightened but scaling up has been a challenge. Unless you get a volume to play around with, you are stuck. For low iron ore grade players of Goa, the most important thing is how we manage logistics cost. For instance, we would like to encourage bringing in cape-size vessels. But the area where we can get further support is loading on trucks that can carry larger haulage.
What part of your cost is logistics and taxation?
Among the things that are sticking out is duplication of taxes. All together, the tax rate works out to 40-60 per cent, inclusive of export duty. Logistics cost continues to very high, especially in Goa where it is twice the national average. Today, the national average is 15-18 per cent. In Goa, it is 30-35 per cent.
How long do you see the glut in the steel market continuing?
It will continue as long as China produces 840 mt. They will continue to export 100-120 mt of steel, primarily automotive grade. Our iron ore grade continues to be exported to China. There continues to be a struggle because high grade price has gone up. This will dominate the pricing factor as our low grades continue to be discounted.
Is there a domestic surplus of high-grade iron ore?
High grade is in surplus in Odisha, Chhattisgarh and Jharkhand. There might be around 50-60 mt of surplus. There is an additional 30 per cent export duty on high grade.
How important is it to lift the production cap, especially when the market is also not good in terms of demand pick-up?
The most important challenge facing the industry is freedom to produce. In Goa, the production used to be 40 million tonnes (mt). The Supreme Court-imposed cap is 20 mt. Vedanta was producing 14.5 mt in Goa; now we are producing five mt because of the empowered committee (EC) cap. Most of the limit in the state gets exhausted by November-December. We believe companies that have exhausted the EC limit should be given higher limits because we cannot produce for a few months and then not produce. There are companies that have a mine that may not be ready for production in the near term. So, those caps are lying unused. We have appealed to the state government to raise our limit if it gets exhausted by November-December.
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What is the company’s plan for the current year?
We will achieve our EC production cap of 5.5 mt in Goa and 2.29 mt in Karnataka. We have appealed to the court to consider increasing the cap.
How do the prevailing prices for iron ore look?
Iron ore prices will remain soft in the near term because these are driven by steel demand, and the steel market is in a glut. Even high-grade iron ore is in significant oversupply. In the medium to short term, there will be softness in prices. In April-May, there was a spurt but prices cooled subsequently. We can’t focus as much on price as much we can on cost. The world has reacted well to the oversupply by managing their cost structures. All the players have scaled up volumes and brought cost down by 50-60 per cent. We have done this in India.
How did you bring cost efficiency to your company?
Logically, the first thing a company does is to bring scale, so we have managed to achieve our empowered committee’s production limit. We also brought down costs in logistics, mineral quality and beneficiation, managing fixed cost. We have also embraced technology. Internal efficiencies have been tightened but scaling up has been a challenge. Unless you get a volume to play around with, you are stuck. For low iron ore grade players of Goa, the most important thing is how we manage logistics cost. For instance, we would like to encourage bringing in cape-size vessels. But the area where we can get further support is loading on trucks that can carry larger haulage.
What part of your cost is logistics and taxation?
Among the things that are sticking out is duplication of taxes. All together, the tax rate works out to 40-60 per cent, inclusive of export duty. Logistics cost continues to very high, especially in Goa where it is twice the national average. Today, the national average is 15-18 per cent. In Goa, it is 30-35 per cent.
How long do you see the glut in the steel market continuing?
It will continue as long as China produces 840 mt. They will continue to export 100-120 mt of steel, primarily automotive grade. Our iron ore grade continues to be exported to China. There continues to be a struggle because high grade price has gone up. This will dominate the pricing factor as our low grades continue to be discounted.
Is there a domestic surplus of high-grade iron ore?
High grade is in surplus in Odisha, Chhattisgarh and Jharkhand. There might be around 50-60 mt of surplus. There is an additional 30 per cent export duty on high grade.