Karnataka going through tough times due to export and mining bans.
Karnataka, an iron rich state is unable to capitalize its own resources owing to the bans imposed by Indian Government on export of Iron ore and mining. As per the report of Federation of Indian Mineral Industries (FIMI), the effect of ban has declined iron ore export to a whopping 70 percent to 18 MnT by the end of FY 13 against 61.74 MnT in FY 12. It brought about an estimated loss of USD 10 billion for the country in the last financial year.
In 2011, Indian Government raised the export duty on Iron ore to 30% in to boost the sentiments domestic market in Karnataka. Later, government imposed ban on Iron ore exports from 10 ports in the state. As a result, miners and steel plants went ahead to set up Iron Pellet plants as it appeared to be a promising investment.
The market was doing well until Supreme Court imposed mining ban in Karnataka in July 2011, on recommendation of MS Shah Commission. The ban was partially lifted after sometime and only NMDC, a state owned miner was allowed to start production. Due to the shortage, Iron ore prices went up hence Sponge Iron plants preferred Pellets for manufacturing. Karnataka that has 34% Pellet production capacity of India found itself in deep trouble. The state which looked promising in 2011 for Iron and Steel Industry, was now witnessing withdrawals of major projects from its territory.
The worsening condition has squeezed the profit margin of Pellet manufacturer and plants are running at breakeven. As reported by Steel 360 in the August issue, the cost of manufacturing is almost equal to cost of selling. In figures, manufacturing cost of 1 tonne of Pellet is INR 6,700 and its selling price is INR 6,900–7,100/MT. The survival of Pellet plant was only due to weak demand otherwise they were doomed to shut down with heavy loss. In September, 2011, NMDC e-auction prices were seen at INR 2,000/MT, in July 2012 it was INR 2,154/MT and now the quoted price is at INR 2,500/MT. A contrasting difference was visible in pricing of Pellets which were offered at INR 8,300/MT a year ago came down to INR 6,900/MT this year July.
In order to reinstate the disturbed situation, the Ministry of Mines might file an affidavit in Supreme Court in mid September, 2013 explaining the tempering situation and the need to lift ban in Karnataka as well as Goa. This update is confirmed by a senior ministry official. Till then, Iron and Steel industry has to keep patience and hope for the best.