For the first time in history, Indian steel companies are forced to import iron ore as domestic production has almost come to a halt, courtesy the Shah Commission report

In an irony, several steel/pig iron producers from India, which is the third-largest exporter of iron-ore, are increasingly looking to import the main raw ingredient. Main reason is that the steel makers are finding it difficult to procure iron ore, especially following complete ban on mining in Goa and lingering restrictions on mining in Karnataka and Odisha. This is forcing them to import iron ore from other countries, when India has one of the largest reserves of iron ore.

The steel industry across the world is in doldrums due to decline in demand, especially from China. India was one of the major exporters of iron ore to China. However, due to steps taken by the authorities to clean up the mining sector, and slump in demand, domestic steel producers are being forced to procure raw materials from abroad.

Several overseas miners, like Brazilian Vale, BHP Billiton and Rio Tinto Group are looking to increase shipping to India. In July, Vale, the world's largest producer of iron ore, shipped 3 lakh tonnes of pellets to India, the first such instance in past several years.

“We believe iron ore lump shortage will be significant in the next two to three years. Given the lump shortage, we expect significant pellet/lump imports in the next two to three years. Signs of such activity are already visible. We expect the trend to gain strength in the next two to three years until new pellet capacities are commissioned," said Standard Chartered Equity Research in a note.

Incidentally, about 90% of NMDC’s recent lump ore e-auction was reportedly unsold as Indian steel mills resorted to capacity cuts due to lower profitability. During 2011-12, iron ore production in India was 169.66 million (provisional) as against estimated consumption of around 116.3 million tonnes by domestic iron and steel industry.

According to a report from Reuters, India's role switch is one reason for a rebound in iron ore prices, which this year fell below $87 a tonne, their lowest since 2009 due to China's slowing economic growth. India's iron ore exports to China fell to less than 300,000 tonnes in October—the lowest in at least two decades—after the ban in Goa. That followed a mining ban in Karnataka in 2011, after shipments there were halted a year earlier, the report says.

While the present iron ore production in the country is in excess of total estimated consumption, domestic steel producers are finding it difficult to procure it with ease. According to reports, steel and pig iron producer such as Essar Steel and Sesa Goa are increasing looking to import iron ore. JSW Steel is also procuring iron ore through e-auction at higher costs.

Earlier, Essar Steel's chief executive Dilip Oommen told DowJones that iron ore imports will be a significant portion of the total iron ore supplies in the current fiscal. “Iron-ore prices globally are quite conducive for imports, and we have already started importing shipments,” Mr Oommen has been quoted as saying by Dow Jones Newswires.

The Federation of Indian Mineral Industries (FIMI) estimates India’s iron ore exports in FY13 at 40 million tonnes (compared with 55 million tonnes exported in FY12) citing non-renewal or non-issuance of mining leases as one of the main reasons.

Meanwhile, Indian steel mills have continued to cut prices on the back of continued sluggish demand, rising inventory and a fall in raw material (coking coal) prices. Flat product demand has remained particularly subdued.

For the week ended 24th November, long product prices declined 0.9% on a week-on-week (WoW) basis to Rs34,500 per tonne, while sponge prices decreased 3.2% to Rs21,000 per tonne on WoW. Hot Rolled Coil (HRC) Mumbai prices (import parity) increased on currency depreciation and uptick in international prices although imports have become uneconomical as domestic prices at Rs33,500 per tonne are at much lower levels due to poor domestic demand.

Globally, during the week, steel prices were mixed, declining in China (down 0.6% WoW) and Turkey (down 3.5% WoW), while continuing to increase in North America (up 1.6% WoW) with some uptick in North Europe (up 1.1% WoW).
 

The Justice MB Shah Commission, appointed by the Union government to probe illegal mining in Goa, has reported a Rs35,000 crore fraud in the state. Even the Supreme Court, hearing a public interest litigation (PIL) filed by social activist-turned-politician Prashant Bhushan, has banned mining in Goa until a Central Powered Committee completes a probe. Since 5th October, mining in Goa has come to a standstill, with the state chief minister Manohar Parrikar clearing stating that mining would not be restarted till the apex court decides to.