THE iron ore industry in India, which has been undergoing a harrowing time over the past few years, is hoping for some relief from the union budget to be presented by Finance Minister Arun Jaitley later this month.

The industry has demanded that the government abolish the 30pc export duty, which has made Indian iron ore non-competitive in the global markets, on low-grade fines. Sources in the industry believe that the government will scrap the export duty in the budget. The government imposed the duty to protect the country’s steel industry, which was facing a shortage of raw materials following the Supreme Court order banning mining in several states.

The iron ore mining sector attracted the ire of the apex court after it was found that corrupt politicians in several states — including Goa, Karnataka and Odisha — had allowed mining rights to their favourite industrialists, even in areas they were not supposed to mine.

The crackdown on iron ore mining has hurt the sector badly. India was the world’s third-largest iron ore supplier before the court imposed the ban in 2010. Exports of iron ore plunged from a high of 100m tonnes that year to 62m tonnes in 2011-12, less than 20m a year later and under 15m tonnes in 2013-14.

Last April, the Supreme Court lifted the mining ban in Goa, though it imposed a cap of 20m tonnes. Goa is the largest producer of iron ore in India. Other major ore producing states include Karnataka, Odisha and Jharkhand.

Domestic demand for iron ore — mainly from steel producers — is estimated at 140m tonnes annually, as against an expected production of 130m tonne. Domestic production peaked at 220m tonnes in 2009-10 and fell to 150m tonnes last year, when the country became a net importer of iron ore, with imports touching 8m tonnes, as against exports of less than 7m tonnes.

Even Tata Steel, one of the largest and oldest steel manufacturers in the country — which had its own captive mines to feed its mills — had to resort to imports to tackle the crisis following the Supreme Court ban on mining. Most of the leading steel producers including Tata Steel, Essar Steel and JSW Steel had to import raw material to meet their requirements.

Imports of high quality iron ore have risen steadily, from around 0.5m tonnes in 2011 to 8m tonnes in 2014. This year, imports are expected to touch the 15m-tonne mark. Imports are mainly from South Africa, Australia and Brazil.

According to the Associated Chambers of Commerce of India (Assocham), India’s ore production has fallen at a time when steel output has gone up from 65m tonnes in 2009-10 to more than 90m tonnes in 2014-15.

The Iron Ore Exporters’ Association has told the government that there is a huge stock of low-grade ore lying in ports and warehouses in Odisha and West Bengal. It has warned the government that stocking the stuff at ports and warehouses could also result in an environmental crisis, as the fines could spill over into nearby water bodies.

By withdrawing the export duty, iron ore producers would be able to sell it in markets such as China and earn foreign exchange. India’s domestic steel producers do not have an appetite for the low-grade fines, which are ultimately used as landfills.

THE iron ore crisis in India has coincided with the sharp decline in the price of the raw material globally. Last year, iron ore prices fell by a whopping 50pc, as demand from China — the world’s largest producer of steel — tumbled.

China’s steel production, which added up to over 820m tonnes last year, is projected to breach the billion-tonne mark by 2030. However, the slowdown in the Chinese economy has hurt the price of several commodities including iron ore. Globally, many miners have boosted their production of iron ore to fill the breach caused by a fall in exports from India.

The cost of imported iron ore — 62pc Fe grade ore — is about Rs3,500 a tonne in India, as against a price of Rs4,000 for the domestically produced mineral. Domestic steel producers have also complained that iron ore producers — including state-owned NMDC Ltd — have been raising prices, in contrast to global prices.

According to JSW Steel, NMDC hiked the price of 64 Fe iron ore by almost 15pc last year, even though the international price for the same grade ore fell by 50pc. This has reduced the cost competitiveness of domestic steel producers, who are now facing the brunt of a glut in steel supplies in countries such as China and Russia. Steelmakers from these two countries are dumping the metal on India, hurting the local producers.

With the domestic steel lobby taking up the issue with the government, NMDC — the state-owned miner — recently decided to cut the price of iron ore.

While the domestic supply situation is expected to ease in 2015, with the government having decided to open up the mining sector to private — and even international — miners, and states like Goa expected to resume mining, pressures on prices will continue for much of the year, say analysts.

If the government withdraws the export duty of 30pc, miners will once again enter the international market, further dampening prices.

But even as miners are demanding a withdrawal — or reduction — in export duty, the government will be under pressure to restrict export of iron ore. Prime Minister Narendra Modi has been focusing on his ‘Make in India’ initiative at global events. By restricting iron ore exports, it would help in ‘making’ more steel in the country.

The steel industry wants the iron ore produced in India to be used for making steel, instead of selling it cheap to Chinese steel mills, who later dump the finished products in the Indian market.

Published in Dawn, Economic & Business, February 9th, 2015

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