Mining Law Amendment To Limit Disruption In Iron Ore Supply: Analysts

Most analysts expect the proposed amendment to mining law to ease transition of iron ore mines to winning bidder post auction of the blocks whose leases are set to expire in March.

That, according to their research reports, will limit the disruption in iron ore supply. Securing fresh environmental and forest clearances by new bidders would have only delayed production, leading to a sharp escalation of iron ore prices and affect the steel industry.

On Wednesday, the government proposed to amend Mines & Minerals (Development & Regulation) Act, 1957. It said all statutory clearances, including those related to the environment, of the outgoing leaseholder would be deemed transferred to new leaseholders, which would be valid for two years.

The government also did away with the end-use sector restriction for allotment of coal mines. Previously, it could only auction coal and lignite mining licences to companies engaged in iron and steel, power and coal washing sectors.

While the analysts said it was the “right step towards commercial coal mining”, they expect limited impact of this development due to lengthy regulatory approval and land acquisition process.

Here’s what the brokerages have to say.

Jefferies

• Proposed mining law amendment to limit iron ore supply disruption due to upcoming auctions of mines whose leases are set to expire.
• This is positive for JSW Steel Ltd. and other non-integrated steelmakers such as Jindal Steel and Power Ltd.
• It’s negative for iron ore producers and NMDC Ltd.
• Restocking by steel mills due to fears of iron ore supply disruption has lifted domestic prices of the key raw material for steelmaking in the recent weeks.
• Removal of end-use restriction for coal block auctions paves the way for commercial coal block auctions
• Commercial mining is a threat for Coal India Ltd.

Citi Research

• Expiry of mining leases may not disrupt iron ore supply in FY21.
• Potential losses to be offset by alternative production sources, inventory rundown, lower exports.
• Base-case scenario assumes limited disruption in FY22 as well.
• To revisit base-case assumption based on success of auctions.
• Aggressive bids could be a “winner’s curse”.
• Captive producers have an economic advantage over merchant miners.
• Captive producers could hoard mines and limit supply in the merchant market.

Bank Of America Securities

• The announcement underscores government’s firm commitment to avoid any disruption in iron ore supplies.
• In the absence of a disruption, the domestic iron ore market is expected to remain oversupplied.
• Expects curtailed pricing power for domestic merchant miners.
• Reduced disruption risk is positive for non-integrated steelmakers such as JSW Steel.
• Relaxation of end-use sector restriction for auctioning of coal mines to incentivise domestic production; right step towards commercialisation.
• High risk of delays due to lengthy regulatory approval and land acquisition process.
• Sees limited risk to Coal India’s volume ramp up/pricing in the near to medium term.