The survival of domestic steel companies is under threat
Reckless export of iron ore has created an artificial shortage and choked up the logistics facility in Odisha, threatening the survival of domestic steel companies.
JSW Steel, which owns a captive iron mine in the State, had to take a close call on shutting its operations in Dolvi due to the shortage.
Iron ore’s bull run may end in the second half of this year
Iron ore production last fiscal came down by almost 44 million tonnes (mt) to 202 mt against 246 mt logged in FY20 largely due to Covid-induced disruption. However, India exported 60 mt against 37 mt in FY20, leading to an overall short supply of 67-70 mt in India, including incremental exports and drop in production.
Miners blame it on demand drop
Miners have blamed a drop in demand as the reason for massive jump in export. Steel production in India last fiscal was down by only 6 mt at 109 mt. A six mt lower steel production translates into iron ore demand drop of 11 mt, whereas supply was down by 67 mt. With the sharp fall in supply, iron ore price jumped 156 per cent to ₹6,560 a tonne from ₹2,560 per tonne last fiscal. Currently, high grade iron ore of 64 per cent iron content is sold at about ₹10,000 a tonne.
The surge in iron-ore, steel prices needs to be arrested
Zooming iron ore prices
Seshagiri Rao, Joint Managing Director, JSW Steel, told BusinessLine that the shortage of iron ore was so acute that the Dolvi plant would have been shut if not for the captive mine in Odisha.
Many of the secondary steel units had to close their operations when iron ore prices zoomed suddenly, he said.
Again, he added, shifting the iron ore from Odisha mine to Dolvi plant in Maharashtra was a logistics nightmare as exporters booked all the available trucks, rakes and barges by paying huge premium.
High export realisations
Exporters could block the logistics services at a high cost because their realisations are very high. For exporters, Rao said, the overall cost works out to ₹1,700 a tonne, including mining cost of about ₹200, royalty and transportation expense of ₹500 and ₹1,000.
The realisation works out to $185 or ₹13,000 a tonne, considering international iron ore price of $200 a tonne and freight of $15, he added.
Moreover, Rao said most exporters evade duty by blending high and low grade as export of ore above 58 per cent iron content attracts duty of 30 per cent.
Rejecting miners’ claim that there is no demand for low-grade ore, he said majority of iron ore in Karnataka is below 60 per cent and hence JSW Steel has set up a 25-mt beneficiation plant to use it. “In our own mine in Odisha we are investing ₹3,450 crore to improve iron content to above 58 per cent,” he added.