Odisha tightens iron ore grade checks after alleged royalty underreporting: Report

Odisha has intensified scrutiny of iron ore quality assessments following allegations that some mining companies understated ore grades to pay lower royalties, Bloomberg News reported, citing a government document and people familiar with the matter.

According to a July 6 memo seen by Bloomberg News, the state's Directorate of Mines and Geology directed local mining officials to explain lapses in verifying ore grades after inspections uncovered repeated instances of alleged misrepresentation or falsification. Officials were given three days to respond or face disciplinary action.

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The directive covers major mining regions, including Joda, Koira and Keonjhar, and names mines leased to companies such as JSW Steel, Tata Steel, ArcelorMittal Nippon Steel India, Steel Authority of India (SAIL), Jindal Steel and state-owned Odisha Mining Corporation among those flagged for alleged misreporting, Bloomberg News reported, citing the notification.

The Odisha government did not respond to Bloomberg News' requests for comment on the document or its contents. Representatives of the companies also did not respond to requests seeking comment, the report said.

The crackdown could affect both domestic supplies and exports, particularly shipments of lower-grade iron ore to China. While India contributes only around 2% of China's total iron ore imports, it accounts for a much larger share of the lower-grade ore used by Chinese steelmakers to cut production costs, Bloomberg News reported, citing commodity intelligence firm BigMint.

Excluding iron ore pellets, nearly 90% of Odisha's low-grade iron ore exports are shipped to China, according to BigMint, as cited by Bloomberg News.

The tighter enforcement has already prompted some mine operators to withhold fresh sales, tightening spot market availability and leading to a build-up of inventories at mine sites over recent weeks, BigMint told Bloomberg News.

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"The current crackdown appears focused on strengthening compliance and revenue collection rather than restricting production," Isha Chaudhary, a director at Wood Mackenzie, told Bloomberg News.

However, "tighter inspections could cause short-term logistical delays and influence the reported grade mix reaching the market," she said, adding that any impact on supplies would likely be temporary as miners adjust to the stricter compliance regime.

Under India's royalty framework, iron ore royalties are levied at 15% of the average sale price. Lower-grade ore containing less than 55% iron attracts lower royalty payments than higher-grade ore with iron content of 65% or more.

The renewed enforcement follows concerns raised by the Comptroller and Auditor General (CAG) of India, which estimated in a March report that Odisha lost about Rs 4,160 crore ($436 million) in royalty revenue during FY21 and FY22 due to the undervaluation of iron ore, Bloomberg News reported.

The audit also flagged an abnormal decline in reported ore grades at six mines, including three leased to JSW Steel, according to the report cited by Bloomberg News.