Many have the tendency to loosely use the word ‘vision’ while talking about an industrialist or a business house. This, however, is a rare attribute, seen in abundance a century ago among the promoters of Tata Steel. Fortunately for the company, this quality has not deserted the successors, as abundant ownership of steel- making minerals from iron to coal to manganese ores will bear it out. The desire to sit at the high table of world steel makers saw Tata Steel buying Corus, nearly four times bigger than itself, in 2007. Group chairman Ratan Tata was quick to decide that investments in iron ore, coking coal mines and signing of supply contracts with mining companies were the need of the hour for Corus which unlike the Jamshedpur plant lacked ownership of resources.
The world’s largest steel maker, ArcelorMittal, was not, however, early off the blocks in resources acquisition. It is making good for the lost time, as its success in stepping up production of iron ore and coal in recent years and spinning off the activity in a separate mining division will show. Like Tata Steel seeking to build capacity in Jharkhand and Chhattisgarh has made it conditional on winning access to iron ore deposits, ArcelorMittal’s two mega steel projects here will depend on its getting adequate mines linkages. To talk of vision, Tata Steel managers obviously believed even when minerals were available cheap that a day would come when mining groups could be whacking user industries like steel with a shovel.
This has been happening for nearly six years. With demand for natural resources rising fast, thanks to the voracious Chinese appetite showing no signs of abating, leading mining groups are able to browbeat user industries into accepting new hurtful pricing formulas. Even China, which saw its first half iron ore imports rise eight per cent year- on-year to 334 million tonnes (mt), is not able to match wits with Brazilian Vale and Anglo Australian BHP Billiton and Rio Tinto, which, between them control over 70 per cent of global ore trade. The world’s largest steel producing country with 47 per cent share of global output apart, the demand surge for minerals in Brazil, Russia and India and other emerging nations is leading miners to entertain the thought that the high super cycle demand could last up to 25 years. The leading miners are able to charge unreasonably high rates for ore, as supply is not in sync with demand growth.
Call it vision or pure happenstance, the historical ownership of mines has kept Tata Steel’s Jamshedpur operations totally immune to any capricious behaviour of merchant miners. There is scope for debate whether Tata Steel promoters who wanted to secure raw materials supply for decades had Malthusian traits in them. Then were the ones who built steel plants without mines linkages Cornucopians, who believed human ingenuity and advances in technology would for all time ensure supply abundance? Alarmed by the behaviour of iron ore and coal prices impacting their margins, all the original Cornucopians in the steel industry are going all out to acquire either virgin deposits or buy or enter into partnerships with mineral companies. When will our steel makers start looking for iron ore deposits abroad or our aluminium producers for bauxite? Whether we have 25 billion tonnes of iron ore or three billion tonnes of bauxite reserves, the fact is these resources are still finite. Moreover, the experiences of Posco, ArcelorMittal and Tata Steel relating to iron ore linkages or of Vedanta in trying to open bauxite mines in the Niyamgiri hills are, to say the least, disheartening. Vizag Steel has assured supplies of ore from NMDC, both government undertakings, but the former has not so far met with luck in its moves to get captive mines.
Former mines minister B K Handique had an occasion to say that “care should be exercised to ensure that the best quality bauxite mineral is not consumed too soon, leaving nothing for our future generation.” Was he not suggesting that we get more focused in prospecting for new deposits within the country and, at the same time, look beyond our shores for bauxite deposits, as we are to lift our aluminium production to five mt by 2015 from 1.6 mt last year? But whether it is iron ore or coal or bauxite, acquisition of resources abroad is becoming increasingly challenging. This will explain why metal producers of size consider it wise to buy equity in mining entities with underlying right to a portion of mineral output. Our own International Coal Ventures Limited, a special purpose vehicle of five PSUs, is also considering at least a couple of options to buy significant equity in foreign mining groups. In a demonstration of boldness and also vision, SAIL Chairman C S Verma has worked hard to put together a consortium with companies from public and private sectors to make a strong bid for an estimated 1.8-billion iron ore deposit at Hajigak in Afghanistan. Hopefully, the trail-blazing Indian attempt for iron ore deposit acquisition abroad will bear fruit.