 "Case for captive, merchant iron ore mining going hand in hand")
Steel Authority of India Limited (SAIL) Chairman Chandra Shekhar Verma is principally banking on 12th Plan infrastructure investment of $1 trillion and rapid urbanisation for the country's still poor per capita steel use of 57 kg to rapidly come closer to the world average of 215 kg. No doubt foreign entities such as ArcelorMittal and Posco want to be here to capitalise on the growing market for steel. Remember, Indian consumption of the metal in 2012 grew at a rate higher than China's. Perhaps, their desire to build mills here is because of the offer of mine linkages by iron ore bearing states. Regrettably, the opening of a new mine here, without exception, remains a patience-snapping long-gestation proposition.
Locally inhabiting tribal families are not easily convinced that a mine project will fulfil the precondition of their rehabilitation and sustainable income. A number of new mine projects, including attempts by SAIL's Bhilai Steel Plant to open a mine at Rowghat in Chhattisgarh with deposits of 511 million tonnes (mt) have run foul of Naxalites. Where security is not an issue, forest and environment clearances do not come easily. Even then, promoters of steel mills of some size have made allotment of iron ore deposits in their favour an investment precondition. Except for SAIL and Tata Steel, which get full supplies of iron ore from their own mines, the others, dependent on local merchant miners for the feedstock, find themselves at comparative price disadvantage, as they remain vulnerable to commodity price fluctuations.
No wonder, steel groups are pitching hard for captive mines. Special steel maker Usha Martin is a totally transformed entity once it started using its own iron ore and DRI grade coal from the recently opened mines in Jharkhand. Let's consider the global scene. China, according to its ministry of industry & information technology, is likely to make 750 mt of steel this year against 716 mt in 2012. In a presentation at the 'Global Steel 2013' conference, Jim Nicholson of Argus Media said China was likely to make 1.1 billion tonnes of steel by 2025. China is the principal reason why iron ore will remain a hot commodity, notwithstanding occasional dip in prices. We have seen over the years there is no love lost between China, which raised imports of the mineral by 8.4 per cent to 743.6 mt in 2012, and the three groups - BHP, Rio and Vale - controlling seaborne trade in the commodity. The country consuming nearly two-thirds of the global seaborne trade in the commodity expectedly devised a strategy with two strands in an attempt to underpin raw materials security for its steel industry, still largely government-owned. Attempts to form a sort of cartel of major Chinese producers to match the wiles of the triumvirate of ore producers, however, collapsed in no time. But coasting along nicely is China's drive to acquire iron ore assets abroad, particularly in Africa and Australia. At the same time, undaunted by the poor iron content of its own resource, China is stepping up home production of iron ore backed by adequate washing and pelletisation facilities.
ArcelorMittal is targeting production of iron ore in excess of 100 mt and coking coal of 11 mt by 2015. A company official says, "Our increased production will be diverted to a greater extent towards external customers to whom we currently ship 15 per cent of our ore. This is a good thing because it enhances our long-term external customer base. This will ensure that we prosper through all economic cycles." Is there a message in this for a couple of Indian steelmakers owning enviably large reserves of iron ore? They have so far been engaged in mining to feed their own mills. How soon will Verma and Tata Steel Managing Director HM Nerurkar give a thought to venturing into merchant mining? This will call for opening of new mines and bigger fund allocations for the sector. It is also time Indian steel groups had put their heart to the job of acquiring iron ore and coal assets abroad.
Locally inhabiting tribal families are not easily convinced that a mine project will fulfil the precondition of their rehabilitation and sustainable income. A number of new mine projects, including attempts by SAIL's Bhilai Steel Plant to open a mine at Rowghat in Chhattisgarh with deposits of 511 million tonnes (mt) have run foul of Naxalites. Where security is not an issue, forest and environment clearances do not come easily. Even then, promoters of steel mills of some size have made allotment of iron ore deposits in their favour an investment precondition. Except for SAIL and Tata Steel, which get full supplies of iron ore from their own mines, the others, dependent on local merchant miners for the feedstock, find themselves at comparative price disadvantage, as they remain vulnerable to commodity price fluctuations.
No wonder, steel groups are pitching hard for captive mines. Special steel maker Usha Martin is a totally transformed entity once it started using its own iron ore and DRI grade coal from the recently opened mines in Jharkhand. Let's consider the global scene. China, according to its ministry of industry & information technology, is likely to make 750 mt of steel this year against 716 mt in 2012. In a presentation at the 'Global Steel 2013' conference, Jim Nicholson of Argus Media said China was likely to make 1.1 billion tonnes of steel by 2025. China is the principal reason why iron ore will remain a hot commodity, notwithstanding occasional dip in prices. We have seen over the years there is no love lost between China, which raised imports of the mineral by 8.4 per cent to 743.6 mt in 2012, and the three groups - BHP, Rio and Vale - controlling seaborne trade in the commodity. The country consuming nearly two-thirds of the global seaborne trade in the commodity expectedly devised a strategy with two strands in an attempt to underpin raw materials security for its steel industry, still largely government-owned. Attempts to form a sort of cartel of major Chinese producers to match the wiles of the triumvirate of ore producers, however, collapsed in no time. But coasting along nicely is China's drive to acquire iron ore assets abroad, particularly in Africa and Australia. At the same time, undaunted by the poor iron content of its own resource, China is stepping up home production of iron ore backed by adequate washing and pelletisation facilities.
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Why China alone, the world's largest steelmaker ArcelorMittal has found mining of iron ore and metallurgical coal across geographies a good value creator. Such endeavours as they buy raw materials security for its steel mills also create a good revenue stream for the merchant trading part. The group has in its DNA to author new models of handling the business of steel and its two principal raw materials. Starting 2011, ArcelorMittal is reporting financial results for mining as a standalone part of the business. With production of 56 mt of iron ore and 8.2 mt of coking coal in 2012, the company's mining operations are counted among the world's five largest producers. The move has allowed taking timely operating decisions and optimal capital allocations for mining. While the company has been involved in closing down high-cost unprofitable plants in Europe in the teeth of opposition from politicians, it is rapidly stepping up investments in mining, which had 22 per cent operating margin last year.
ArcelorMittal is targeting production of iron ore in excess of 100 mt and coking coal of 11 mt by 2015. A company official says, "Our increased production will be diverted to a greater extent towards external customers to whom we currently ship 15 per cent of our ore. This is a good thing because it enhances our long-term external customer base. This will ensure that we prosper through all economic cycles." Is there a message in this for a couple of Indian steelmakers owning enviably large reserves of iron ore? They have so far been engaged in mining to feed their own mills. How soon will Verma and Tata Steel Managing Director HM Nerurkar give a thought to venturing into merchant mining? This will call for opening of new mines and bigger fund allocations for the sector. It is also time Indian steel groups had put their heart to the job of acquiring iron ore and coal assets abroad.