Millennium Post

Cast in an iron trap

Unbelievable, but true: India, until recently the world’s 3rd largest exporter of iron ore, has lately imported a lot of this commodity to support domestic steel production. India’s sudden entry into the global iron ore market as an importer has shocked the rest of the world. It is like ‘carrying coal to New Castle’ which is meant to express an archetypally pointless activity or an aberration. Thanks to the country’s self-injurious sectarian politics, poor economic governance and hyperactive judiciary, the centuries-old English phrase has now come to be true to describe the situation in India – one of the world’s largest miners and exporters of iron ore has turned a large importer of the commodity even as the country’s scores of iron ore mines are lying ‘idle’ for want of proper direction from the authorities.

Incidentally, the English adage also carries another meaning for management students. That is: ‘even such a difficult thing – carrying coal to Newcastle – may be made possible only through some superb sales skills.’ The irony is that no superb sales or marketing effort was required to export iron ore to India. Our political leaders have shown uncanny skills to make even the seemingly difficult thing easily possible especially when it comes to hurting the national interest. Effectively, the Indian steel industry’s latest bid to import iron ore has been made possible through some real-time skillful skimming by some of the country’s top political administrators in the central and state governments to serve their vested interest at the national cost of several billions of dollars, all in hard currencies, and to add to the economic woes due to alarmingly high current account deficits.

The international market is stunned with India’s entry into the iron ore import market. The global price of the commodity zoomed by around 20 per cent by the first quarter of 2013. OBO ships (ore-bulk-oil carriers) are said to be in short supply following India’s turning ore importer. Charter-hire rates have reportedly moved up too. Ore shortage has adversely impacted domestic steel production, opening fresh opportunities to other large steel producing nations such as China and South Korea using surplus capacities to dump more steel to India. In terms of tonnage, India is the world’s fifth largest steel producer. It is a national shame and a scam of an unparallel proportion that India’s steel mills have been forced to cut back production for want of iron ore.

Ironically, most of India’s large steel plants are located in non-Congress governed states – Indian Iron and Durgapur Steel Plant (West Bengal), Tata Steel and Bokaro Steel (Jharkhand), Rourkela Steel (Odisha), Bhilai Steel (Chhattisgarh), JSW Ispat (Karnataka and Tamil Nadu) and Essar Steel (Gujarat). The Congress-led central government, which is primarily responsible for the creation of such an absurd situation, does not seem to be concerned about the massive economic loss to the country over the issue of illegal mining, an age-old practice that thrived under political patronage and  the indulgence of corrupt regulatory authorities.

The severe shortage of iron ore supplies from Karnataka and Goa, where mining was stopped following a Supreme Court directive, and the cap on production in Odisha have led to India’s becoming a net importer of iron ore during 2012-2013. Till 2011, India was the third-largest exporter of iron ore. During the last nine months of 2012, India was believed to have imported about six to seven million tonnes of iron ore. The f.o.b. (free-on-board) value of the import at last year’s peak rates could be around $800 million. Add the shipping and insurance costs, the total value will be close to $1 billion. Some steel mills such as JSW Ispat, Bhushan Steel and Essar Steel have been importing ore for their port-based steel plants. JSW Ispat has also used imported iron ore for its plant in Salem and is considering importing the commodity for its plant in Bellary, too.

According to the Federation of Indian Mineral Industries (FIMI), India’s iron ore exports fell 62.3 per cent to 15.05 mt in the April-November period, against 39.95 mt in the corresponding period of the previous year. Since November, no iron ore exports from India were recorded. Indian steelmakers fear that the availability of domestic iron ore will fall further in 2013-2014, owing to several constraints in many iron ore-producing states. This could mean lower domestic steel production, larger imports, more foreign exchange loss and higher trade deficit.

Meanwhile, In the first five months of 2012-2013, India’s steel imports leapt 39 per cent year-on-year (YoY) to 3.34 million tonnes (mt). September imports at 5,30,000 tonnes grew at nine per cent over the same month in 2011. The total f.o.b. value of the steel import during the first six months of 2012-2013 would be of the order of at least $4 billion. The local steel trade feels that India will be a forced to become a net importer of steel for at least the next two years. The country has been going that way for some time. International media reports quoted JSW Steel Chairman Sajjan Jindal saying India’s imports of the metal would rise 18 per cent to eight million tonnes in 2012-2013. Imports of this order will keep India a net importer of steel by some margin.

Added to the government-made iron ore supply crisis, new steel projects are held up due to land acquisition hurdles. It is to be said that had land acquisition not been such a long gestation issue, a good chunk of new capacity, maybe including that of Tata Steel’s three-million-tonne capacity first phase Orissa project, would have come on stream by now.

This no doubt would have made some imports redundant assuming that local iron ore mines came back to action. Imports of certain grades of specialty steel, like grain-oriented flat rolled electrical steel requiring use of technology held closely by some offshore groups, will still be unavoidable. At the same time, once Tata Steel’s Jamshedpur mill expansion is over, much of our auto grade flat steel imports will be substituted.

Although the Supreme Court had lately allowed Category A mines in Karnataka to resume operation, only a few mines have responded to the gesture after a long lay-off. Mining is highly labour and capital intensive. It can’t be organised overnight.

State-owned National Mineral Development Corp (NMDC), which has been allowed to produce one million tonnes a month from its Karnataka mines, is able to produce only about 7,00,000 tonnes due to logistical bottlenecks. It is not clear if and when the government will act positively to deal with the current impasse over the administration-made domestic shortage of iron ore and steel. (IPA)
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