Iron Ore Supply Disruption Looms For India’s Steelmakers
The Odisha government’s decision to plug a loophole and call fresh bids for mines, and India’s requirement of fresh environment clearance before starting production aggravated fears of iron ore supply disruption for steelmakers.
Around 18 merchant mine leases in Odisha—which contribute around 50 percent of India’s iron ore production—will be auctioned between January and February next year, according to the new tender document. Any disruption would hurt steelmakers like JSW Steel Ltd. and Jindal Steel and Power Ltd. that expected to increase capacity by sourcing raw material from these mines.
Odisha on Dec. 6 invited fresh tenders after it annulled the previous three bidding rounds in which same groups had placed multiple bids for one mine. A single group, including its affiliates, can’t bid for the same iron ore block more than once,
That’s likely to cause supply disruptions for steelmakers. Emkay Global said in a note that Vedanta Ltd. and its affiliates had submitted bids for the same 10 mines. Similarly, JSW Steel and its subsidiaries submitted 16 bids for five mines.
BloombergQuint’s emailed queries to JSW Steel and Vedanta remained unanswered.
In order to offset the potential shortage of iron ore, the government allowed Steel Authority of India Ltd. to sell its 70 metric tonnes per annum of subgrade iron ore inventory and 25 percent of its previous year iron ore production. Besides, most analysts, including rating agency Crisil, expect iron ore stockpiles of 150 million tonnes as merchant miners maximise output before the March 2020 deadline.
Still, Amit Dixit, analyst at Edelweiss Securities, expects iron ore imports to rise and prices to soar. The measures taken by the government would not be enough to counterbalance the shortfall for the industry, he told BloombergQuint.
The Ministry of Environment, Forest and Climate Change on Nov. 29 mandated fresh environment clearance for the mines whose leases are expiring by March 2020.
That came as a surprise for potential bidders who expected that the existing environmental clearances for the mines would continue for two-three years on a provisional basis till the new lessee received the permission, said the note from Emkay Global.
Former Steel Secretary Aruna Sharma, in a phone interview with BloombergQuint in March, had cautioned fresh environment clearances would delay the production by two years.
Sumangal Nevatia, analyst at Kotak Securities, however, expects a potential disruption to last only six to nine months. The government is expected to fast-track the process, he said.
State-run NMDC Ltd., India’s largest producer of iron ore, would be an obvious beneficiary of any potential disruption as any shortfall would only mean higher iron ore prices, Vishal Chandok, analyst at Emkay Global, wrote in a Dec. 8. report. And the shortage of iron ore could force the government to open NMDC’s Donimalai mines, Chandok said.