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India's leading steelmakers expand captive iron ore capacity by nearly 30% since Mar'20

Share of merchant iron ore capacity drops 3% since Mar’20 State-owned merchant miners increase capacity rapidly Steel mills paying high premiums for large reser...

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26 Feb 2022, 09:37 IST
India's leading steelmakers expand captive iron ore capacity by nearly 30% since Mar'20

  • Share of merchant iron ore capacity drops 3% since Mar'20

  • State-owned merchant miners increase capacity rapidly

  • Steel mills paying high premiums for large reserves, high-grade ore

India's current iron ore capacity has increased to around 376 million tonnes (mnt), a growth of 7% from 350 mnt before March 2020 - the defining moment in the country's minerals sector when expiry of merchant leases paved the way for minerals auctions that altered the dynamics of iron ore mining and the mines and minerals industry in the country.

There has been a sharp growth in the iron ore production capacity of captive miners - mainly leading steel producers - by nearly 30% since Mar'20 in contrast with the 3% fall in merchant production capacity, latest SteelMint data reveal.

State-owned merchant miners

India's iron ore sector has undergone radical changes since amendments were brought to the Mines & Minerals (Development & Regulation) Act, 1957 (MMDR Act) to establish auction of mine blocks in different states as the only route for transparent allocation of mineral resources.

Iron ore block auctions in mineral-rich Odisha before Mar'20 had the direct effect of reducing the share of pure-play miners, or merchant miners, in India's collective iron ore capacity by a little over 3% from 226 million tonnes (mnt) before the auctions to 218.5 mnt in Feb'22.

The 3% reduction in the share of merchant iron ore capacity after the Odisha auctions before Mar'20 might seem marginal, considering the country's overall capacity. However, the space has shrunk for many merchant miners very drastically, although the state-owned merchant miners have increased capacity.

Odisha Mining Corporation (OMC), a state PSU miner, has witnessed a nearly 120% increase in iron ore capacity since Mar'20. This was due to both to non-operational auctioned leases in Odisha being allocated to OMC as well as expansion in capacity of existing mines. In fact, OMC's total capacity has risen from 15.6 mnt in Mar'20 to over 34 mnt at present.

Similarly, the country's top CPSU iron ore miner NMDC has expanded capacity from around 45 mnt in CY'20 to around 52 mnt at present. But, at the same time, leading merchant miners such as Essel Mining and Sarda Mining Pvt. Ltd. (SMPL) no longer have any iron ore mines left.

While Serajuddin has somehow got hold of its existing block, major merchant miner Rungta has seen its capacity contract from more than 48 mnt to around 16 mnt between Mar'20 and Feb'22.

Surge in share of captive miners

On the other hand, the share of captive miners - all steel producers -has risen remarkably fast by nearly 30% during the period. Steel major JSW Steel has increased its captive iron ore mining capacity by nearly 80% since the Odisha auctions in CY'20 over and above acquiring two additional merchant mines in Odisha.

JSW's peer AM/NS India has attained captive capacity of 12.66 mnt to sustain its steel and pellet-making operations. Tata Steel has raised capacity to 46 mnt. The steel major acquired the Gandhalpada iron ore block later in the Odisha auctions in Aug-Sept'21 for a steep premium.

State-run SAIL's iron ore mines across Odisha, Jharlkhand and Chhattisgarh have a combined capacity of close to 60 mnt.

Value addition

Industry experts told SteelMint that pure-play mining in iron ore has increasingly become difficult since the auctions, with unrealistic premiums being quoted by the steel companies to ensure long-term control over raw material resources, as evidenced in the auctions in Odisha before Mar'20 as well as in Aug-Sept'21.

Naturally, steel producers enjoy the advantage of long-term value addition.
In addition, the competition to acquire relatively high-grade ore in mines that have the potential to be scaled up to sustain near-term steel capacity expansion plans is intense among the country's leading steelmakers.

However, the Union Ministry of Mines has amended the MMDR Act to remove the distinction between 'captive and non-captive mines', stipulating that all mines can be auctioned for commercial purposes without any 'end-use' restriction.

Companies have been allowed to sell 50% of the mineral excavated from captive mines in the previous financial year for sale in the open market upon payment of additional premium.

 

26 Feb 2022, 09:37 IST

 

 

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