Closure of mines in Odisha creates shortage of iron ore: Icra

The closure of six iron ore mines in Odisha has created a supply shortage of 5.5 million tonne, due to which the rates of lump ore have gone up by around Rs 400-500 metric tonne (MT) in January, according to Icra.
This is further expected to result in increased cost of steel production by around Rs 800-1,000/MT, it added.
"The closure of six iron ore mines in Odisha from January 1, 2018 due to non-payment of compensation to the state government before the deadline of December 31, 2017 has created a supply shortage of around 5.5 million tonne in the current quarter, which led to lump ore prices rallying sequentially by around Rs 400-500 metric tonne in January 2018," the credit rating agency said in a report.

Apex mineral body FIMI said that Odisha contributes a major part of the total domestic iron ore production.
Federation of Indian Mineral Industries (FIMI) General Secretary R K Sharma said Indian steel industry needs about 120 million tonne yearly iron ore and about 50 per cent of the total production of iron ore is done in Odisha.
Icra noted that the larger Odisha-based miners which delayed in making compensation payments, have either already deposited it in January 2018, or are in the process of arranging funds, and are therefore likely to pay the same shortly, given the buoyant ore prices currently.

"In such a scenario, if the Hon'ble Supreme Court allows these mines, which have deposited the compensation, to resume operations soon, the recent sharp rally in iron ore prices is unlikely to sustain into Q1 FY 2019," Icra said.

Icra also notes that the domestic supply of iron ore is significantly higher than its overall consumption, which reaffirms its belief that iron ore prices are unlikely to increase further significantly over the medium term.
Following the failure to pay compensation amounting to 100 per cent of the value of iron ore mined illegally earlier within the deadline of December 31, 2017, the Odisha government ordered "temporary discontinuation of operations" at six iron ore mines in the state having a cumulative rated capacity of around 23 million tonnes Per annum (MTPA).

This move has created a supply shortage of around 5.5 MTPA in the current quarter, as a result of which domestic iron ore prices rose by Rs 400-500/MT (ex-mines, excluding duties and taxes). Lump ore prices in Odisha have increased sequentially by Rs 400/MT in January 2018.
Moreover, following the shortage in Odisha, NMDC Ltd has announced a rise in lump and fines prices from its Chhattisgarh mines by Rs 500/MT in January 2018.
After taking into account the applicable duties and taxes, this increase is expected to lead to a rise in cost of steel production by around Rs 800-1000/MT.