India is likely to turn into a net importer of iron ore due to shutdown of seven mines in Odisha due to non-payment of penalties.
India is likely to turn into a net importer of iron ore due to shutdown of seven mines in Odisha due to non-payment of penalties. This may help domestic ore producers such as NMDC and Sandur Manganese to regain pricing power given a wide gap between domestic and international ore prices.
Despite the recent price increase by NMDC, largest iron ore miner, domestic iron ore price is at around 20 per cent discount to the global prices, thereby leaving room for future price increase. This would not only be positive for iron ore producers but also benefit Tata Steel. Since the company has its own ore mines — known as backward integration in production parlance — it will have a cost benefit over other players such as JSW Steel, Jindal Steel and Power and SAIL, which source ore from other producers.
After the curbs on excessive and illegal mining in 2010, India’s ore production fell from 220 million tonnes (MT) in FY10 to 130 MT in FY15. As a result, from exporting over 100 MT in FY10, India turned into a net importer by FY15. However with gradual opening up of production, the output increased to 200 MT. India has also started exporting in recent months.
However, the shutdown of the mines in Odisha may change the equation once again. Although the Supreme Court has permitted 5 MT increase in Karnataka’s ore production limit to 35MT last month, it may take time to ramp up. In the meanwhile, the miners will benefit with a better pricing power.
