The restriction on iron ore mining in Odisha may take a toll on steel companies which are facing a tough time due to a fall in demand.
The Odisha Government has directed 10 mining companies, which have applied for licence renewal, to restrict iron ore mining only for captive use. Companies such as Tata Steel, Jindal Steel and Sail have a mining presence in Odisha, while the rest are merchant mines.
Though a large quantity of iron ore is exported from the State, the restriction is expected to shave-off a supply of about 25 million tonnes from the market and push iron ore prices up, said a steel company official.
Iron ore has already become a scarce commodity after the recent mining ban imposed in Karnataka and Goa. Iron ore production in Odisha is on the decline, and may touch 55 million tonnes (mt) this year, against 77 mt produced last year.
Goutom Chakraborty, Research Analyst, Emkay Global Financial Services, said mining restrictions would definitely put pressure on profit margins of steel companies in the short-term.
“Iron ore and pellet prices are bound to increase sharply and steel producers will find it difficult to pass on the cost to consumers due to weak demand,” he said.
Future benefit
Apart from iron ore mines, the State Government is to take a call on 18 other mines which will come up for renewal.
In the long-run, industry sources feel the curb on mining will benefit the metal industry, as all merchant mines are proposed to be taken over by the Orissa Mineral Corporation. The Corporation is to also sell the ore produced from the State, either through auction, or as a direct long-term agreement.
In Karnataka, State-owned NMDC conducts e-auction of iron ore following the Supreme Court direction. The base price for the September quarter e-auction was reduced by NMDC, after the industry made a representation to the Government.
A few steel companies, particularly those located near the sea port, have already started importing the key raw material. With iron ore of the 62 FE grade quoted at $110 a tonne, it makes more sense for steel producers to look at imports if they can handle the logistic cost efficiently, said Chakraborty.