Steel companies in India stocking up on iron ore on fear of supply disruptions

Steel manufacturers and other end user industries in India have accelerated iron ore buying as they fear disruptions in supplies after the end of lease tenure of merchant mines by March 31, 2020.

Almost all leading integrated steel makers and secondary producers have intensified iron ore sourcing to avert raw material crunch and ensure uninterrupted plant operations. They are looking to build up stocks for three to six months.

Steel companies are weighing options to stash the ore in stockyards by availing land on lease. The Odisha government has previously allowed storage permits for both end user industries and merchant ore producers whose validity runs till March 2022.

The grant of storage licenses for the merchant miners was warranted by the huge inventory of minerals within lease area. The disposal and sale of this stockpile was needed to facilitate smooth transition of ownership of mines and also to avert any obstruction in their production after take over by the new bidders following auctions.

Industry sources have estimated the accumulated ore at mine lease heads of merchant mines in Odisha at around 70 million tonnes (mt). However, a bulk of the inventory is made up by baser grade fines which hardly have any uptake in the domestic market. Steel manufacturers opt for lifting higher grade ore as inferior material escalates their costs of operations.

Supply disruptions of iron ore seem inevitable as the Union government is yet to take a firm call on extending environment and forestry clearances. A host of approvals like Mining Plan endorsed by Indian Bureau of Mines (IBM) and Consent to Establish and  Consent to Operate granted by the State Pollution Control Board (SPCB) need to be obtained.

As their lease validity heads for expiry by March 2020, merchant miners for the past two months are producing 100 per cent of the mandated limits under environment clearance (EC) compared to 60-70 per cent earlier. Odisha is the country’s biggest iron ore producer. In last fiscal, the state produced 114 mt, contributing more than 50 per cent to the nationwide output. In FY20, Odisha’s iron ore production is expected to grow 20 per cent as production quickens from merchant mines.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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