14/08/14 – Will India Increase Iron Ore Imports?

 

Summary

The Indian government announced a couple of infrastructure projects that will increase steel demand in the country.

India’s steel consumption is expected to increase 5% from 79 million tonnes in 2013 to 83 million tonnes in 2014.

The iron ore mining ban in several Indian states could create a shortfall for meeting the steel industry demand. Hence, importing iron ore appears to be an ideal solution.

The Indian government announced the construction of 100 smart cities and a couple of infrastructure projects in its fiscal year (or FY) 2014/15 (April 2014 to March 2015) budget, which will increase the steel demand in the country. India’s steel consumption is expected to increase 5% from 79 million tonnes (or MT) in 2013 to 83 MT in 2014, while the production is expected to increase 3% from 81 MT in 2013 to 84 MT in 2014.

 
The problem

India’s iron ore production has declined due to high export duty, land acquisition issues, delay in lease renewal, and mining ban in the states of Karnataka, Jharkhand, Odisha, and Goa. The Bellary-Hospet region in Karnataka, Jagdalpur district in Chattisgarh, Odisha, and Jharkhand have high-grade iron ore deposits, while Goa has low-grade deposits. The mining ban has affected operations of Vedanta Resources (OTCPK:VDNRF), as the company owns iron ore mines in Goa and Karnataka. In April 2014, the Supreme Court of India permitted iron ore mining in Goa with an annual cap of 20 MT.

Indian steel companies Steel Authority of India, Tata Steel, and Jindal Steel and Power have captive iron ore mines, while the remaining are waiting for the allotment of captive iron ore mines.

ArcelorMittal (NYSE:MT) plans to scrap its 12 MT steel project in Odisha due to land acquisition issues. The company has started fencing its 6 MT steel project site in the Bellary district of Karnataka. However, the company doesn’t have a captive iron ore mine, and is waiting for the auction process of 51 iron ore mines in Karnataka. POSCO (NYSE:PKX) is waiting for the formal handover of land and captive mines for its $12 billion, 12 MT greenfield plant project in Jagatsinghpur, Odisha. The project area has been reduced from 4,400 acres to 2,700 acres due to opposition by local villagers.

 
The effects

The recent iron ore mining ban in Odisha caused an increase in iron ore prices containing 63% Fe from $30 (INR 1800) per tonne to $40 (INR 2400) per tonne. The royalty rates are expected to increase from 10% to 15%, which will increase the iron ore prices further.

 

 
Source – SeekingAlpha.com