Steel industry plans Rs 8,000 cr investment on pelletisation

To address the several restrictions on iron ore exports, many mining and steel companies have decided to invest in the processing of low-grade iron ore into pellets, the processed raw material used for making steel.

Low-grade iron ore, meaning ore with an iron content of less than 63 per cent, is termed ‘fines’. Till recently, around 100 million tonnes of these were exported in a year, the bulk to China. The domestic steel making industry prefers not to use this variety.

With the restrictions, steel and mining majors such as JSW Steel, Essar Steel, Ispat Industries and NMDC have decided to invest in making pellets to feel steel plants. Their combined plans total Rs 8,000 crore in the next four years, to establish pelletisation capacity of 40 million tonnes a year.

For instance, Essar’s 12-million tonne pellet plant is being set up in two equal phases in Orissa. Commercial production is expected by October 2012. After commissioning, the company will have a total pelletisation capacity of 20 mt yearly; at present, it has an eight mt pellet plant at Vizag, Andhra.

“The industry requires Rs 20,000 crore to process the entire (amount of) exportable fines, which looks impossible at this point in time unless steel mills take an aggressive initiative,” said Haresh Melwani, CEO of H L Nathurmal & Co, a Goa- based iron ore miner and exporter.

The government has already levied 10 per cent ad velorem royalty on iron ore mining and this is likely to be doubled. Also, the proposed changes in mining rules call for an amount equal to the royalty to be paid for the welfare of project-affected people.

The government has also levied a 20 per cent export duty. Siddharth Rungta, president of the Federation of Indian Mineral Industries, has already forecast a steep decline in iron ore exports from 95 mt last year to 70 mt this year.

In 2009, the total output of pellets was 10.5 mt (against installed capacity of 26.7 mt), 40 per cent less than the production of 17.5 mt in 2008. With the recent initiative by mega steel players, pelletisation capacity is likely to rise to 30 mt by March 2012 and to 51.7 mt by the end of 2015. Iron ore fines consumed by steel units in 2009 was recorded at 18.9 mt.

Fimi secretary general R K Sharma said, “The government is inviting a big risk by forcing iron ore miners to set up pelletisation plants to convert iron ore fines into pellets. Despite incurring a cost on conversion, miners are unlikely to get adequate remuneration, as pellets need to compete with high-grade iron ore (called lumps). Steel mills may prefer to use lumps instead of pellets at a premium.”

Fimi has urged the government to provide long-term leases on iron ore mines, provide technological support, avail adequate quantity of water and power, arrange for space to dump industrial wastes and assure adequate returns before forcing miners to set up pellet plants.