A never-ending debate on the need for iron ore exports

Should a country endowed with rich deposits of a mineral go for wholesale conservation for local value addition for any number of years in future? Or, should the ideal course be to allow exports without disincentives like penal export duty and discriminatory rail freight as local metal producers in keeping with their rapid capacity build-up process larger and larger quantities of the mineral? The shrillness of the debate on the desirability of the country returning to its potential of exporting 100 million tonnes (mt) of iron ore, seen in the three-year period starting 2008-09, is becoming stronger by the day. The debate remains inconclusive, with the government so far leaning more on no-export advocates, like steelmakers, leaving stranded merchant miners fretting and fuming. The warring groups stand as yet another example of how argumentative we Indians are.

The stick the government wielded by charging a uniform export duty of 30 per cent on lump ore and fines and making rail freight on exportable mineral nearly four times more than when it is transferred for domestic use has achieved more than perhaps is intended. "Much to the agony of miners, iron ore exports have collapsed. Between April and November 2012, our export shipments were only 15.05 mt, a fall of 63 per cent year-on-year. You don't have any exports from Karnataka and Goa for the mining ban and not much is leaving the shores from the eastern sector mines either, thanks to oppressive duty and freight," says R K Sharma, director general of the Federation of Indian Mineral Industries (Fimi). Between 2009-10 and 2011-12, iron ore exports, mostly fines and destined over 90 per cent to China, nearly halved to 61.74 mt. Merchant miners are now reconciled to another year of resounding export debacle. They are seeing their top line and bottom line collapsing. But, all this is not necessarily good news for loca
l steelmakers, whose primary requirements are calibrated lump ore.

Fimi president H C Daga explains, "This is because, in the absence of evacuation of fines from mine sites, their stocks build-up is now standing in the way of normal mining activities. In Odisha and Jharkhand, we have over 75 mt of fines stacked in mine areas. No wonder, then, supply of lump ore is intermittently becoming an issue. The country, seen as the world's next big centre for steel capacity growth because of its rich iron ore resource, has paradoxically started importing ore and also pellets." Commercial considerations beside, fines inventory of this order is a threat to the environment, the blame for which is to be laid on the government, says Daga. At the same time, the government at the Centre and in ore-bearing states had reasons to come down hard on errant miners.

Interestingly, Fimi has not been found dithery in saying "governance deficit and political and bureaucratic involvement in illegal mining in Karnataka and Goa" are also among the prime reasons for the mining sector disarray. Miners in Odisha, however, feel they are coming in for a lot of stick from the state government for unsubstantiated reasons. Is Fimi, then, not justified in nursing a grudge that the Odisha government actions are to result in its own undertaking gradually becoming a virtual monopoly supplier of iron ore and bauxite to steel mills and aluminium smelters without mines linkages in the state? As it may be, New Delhi should have understood, as argued by Fimi, that for lump supply to become normal, the precondition remains the evacuation of mountains of fines. In the absence of sufficient local demand for fines and low grades of ore found in Goa, liquidation of fines stocks is linked to the government restoring conditions ideal for exports. At least till such time our steel makers have readied themselves to use much larger quantities of fines than now, their exports, in the interest of all stakeholders, should not be hindered.

As miners go deeper and deeper to extract ore, the share of fines in the final product, after boulders and lumps are ideally sized for use by DRI plants and steel units, are as much as 70 per cent. According to the Indian Bureau of Mines, in the 2011-12 ore production of 167 mt, fines constituted as much as 117 mt. An official report says as the share of fines in steelmaking here is to rise to 72 per cent by 2019-20, the problem of their oversupply of fines will get automatically extinguished. Sharma says, "Where will be the need for export, which in any case is full of hassles, when local fines' use comes to that level? But till that happens, export roadblocks should go." A common refrain in the steel industry is that iron ore being a finite resource, we should not barter it away for short-term revenue gains by way of exports. The steel ministry's stand is iron ore reserves, as of now, are unlikely to be found enough to meet the requirements of our steelmakers "beyond the next 20 to 25 years". Sharma contests the ministry conclusion, citing empirical evidence from our ore-bearing regions and also abroad that greater the mining activity and demand, the total resources booty keeps growing. Exploration unfailingly gets a major boost from a vibrant mining sector.