Miners eye high-grade iron ore to pare losses

Plan beneficiation plants to improve low-grade iron ore.

Low-grade iron ore miners are considering setting up beneficiation plants to convert the ore into higher grades. The move follows the government levying duty on the export of the mineral, hitting the bottom lines of iron ore companies.

An export duty of $7 a tonne has made the domestic iron ore costlier, leading to importers, especially major Chinese steelmakers, keeping off the raw material. Iron ore miners have decided to stop selling and are piling up the inventories instead as long as buyers do not agree to share the burden.

After negotiating with the Chinese buyers, the low-grade iron ore quoted in the range of $25-35 a tonne at the domestic ports. With the export duty, transport cost and labour charges result in miners getting below $20 a tonne, making exports unviable. 
 

DECLINING SHIPMENTS Export in million tonne
Ports	Apr 1, '05 to Feb 28, '06	Mar  2006	Apr 1, '06 to Feb 28, '07	Mar 1-20 2007	Mar 21-31 2007*
Vizag	8.36	0.74	7.78	0.25	0.18
Paradeep	9.07	1.20	10.80	0.34	0.20
Haldia	7.15	0.56	7.88	0.24	0.10
Kakinada	3.16	0.36	3.38	0.09	0.04
Chennai	8.56	1.14	9.52	0.49	0.25
Mormugao	21.67	3.26	22.83	1.99	1.16
Panjim (Goa)	9.44	1.90	12.51	1.09	0.00
New Mangalore	8.27	0.84	5.44	0.15	0.05
Karwar	1.49	0.36	1.43	0.04	0.04
Bellikeri	0.95	0.21	2.47	0.25	0.11
Ennore	0.45	-	1.57	0.05	0.05
All India	78.57	10.57	85.61	4.98	2.18
* Estimates                                                                Source: FIMI

"The cost of mining is around $20 a tonne, making the export of low-grade ore non-feasible. Hence, the only option left with us is to stop exporting or set up beneficiation plants to convert low-grade iron ore into high grade by raising the iron content in it," said Haresh Melwani, CEO of HL Nathurmal & Co, an iron ore exporter in Goa.

Setting up a beneficiation facility requires an investment in the range of Rs 2-50 crore for a plant capacity ranging from 500-10,000 tonne a day, with a gestation of a year. For a year, either the mines have to cut down their activities or pile up inventories.

Low-grade iron ore contained impurities such as silica (SiO2) and alumina (Al2O3), which if beneficiated would discharge 30 per cent of slime (mud). Dumping the slime would have a major impact on the environment, said Melwani.

Low-grade iron ore miners were badly hit after the government's decision to levy a $7 a tonne export duty on iron ore, aimed at making the raw material available to domestic steelmakers. However, high-grade iron ore miners have not been affected by the levy, as their higher realisation ($65-75 a tonne), compared with the low-grade iron ore miners' realisation ($25-35 a tonne), helps them offset the cost of the duty.

Panaji in Goa, a bustling port exporting low-grade iron ore, currently handles only 2 shiploads of the mineral compared with 20 shiploads last month. This indicated that the Goa-based iron ore miners have reduced their activities sharply, a local miner said.

Despite a 9 per cent increase in the first 11 months of 2006-07, the iron ore exports are estimated to decline dramatically to 7.16 million tonne in March 2007 from 10.57 million tonne in the same month last year. Total exports perked up to 85.61 million tonne between April 2006 and February 2007 from 78.57 million tonne in the comparable period last year.

Panjim port charges Rs 150 a tonne as against Rs 225 a tonne charged by Mormugao port, making the former a preferred choice for low-grade iron ore exporters.