To achieve our goal, we must become a competitive low cost producer and to be a low cost producer, we need to produce in volumes. We do know that quantum production always has an advantage on price, but there are other prior requirements too. In order to achieve this feat, we need to address issues those are not yet resolved and they’ve been a roadblock towards the nation’s development. I’ve sorted out 10 points, which I believe are a roadblock for development these need to be resolved.
Availability of sufficient quantity of Iron ore & Coal at a reasonable price.
The situation in the previous 2-3 months has worsened. Iron ore mines are blocked, coal reserves have been de-allocated and India at the moment is witnessing one of the greatest droughts of raw materials. We’ve already seen good quantity of Iron ore, and coal imports to Chhattisgarh are 10 times higher compared to what it used to be 3 months back. If we’ve to be a low cost producer, our raw material has to be of a low cost.
Faulty procedure of auctioning Iron ore, which leads to cornering of raw material by Large Steel plants.
There’s no perfect solution to every situation. On one hand, auctioning of coal can be a fair practice, as it relates to many industries. On the other, Iron ore is a commodity used only by Steel plants. In context to Iron ore, the distribution of market is unequal in India i.e. there is a plant with an annual requirement of 25 MnT; there are plants with a requirement of just about 1 MnT and also there are more than 100 plants with an annual requirement of 0.1 MnT. Hence, there’s a huge disparity in Iron ore requirement. Therefore, if the distribution is through auction process, it’s quite obvious that the manufacturers who have stronger financial muscle are going to take away most of the raw material. Manufacturers who have higher capacity, higher financial power, higher resources and a better infrastructure, can easily corner others who are not as big. There must be a procedure with equitable distribution of Iron ore in the industry.
We’ve tried to discuss this issue with Ministry of Steel & Ministry of Mines. One of the officials from these ministries asked me “Do you think these auctions can solve your problems?” I told them ‘never’; auction will never solve our problem. The auction process is complicated i.e. it starts with production, then stacking, auctioning and only after then it is sold. Only after the sales, one can think of another batch of production. I think there has to be a process of continuous production and sales, which is somehow limited by auctioning.
Unhealthy competition between plants those have captive mine and plants who are starving for Iron ore.
I think that the competition is unhealthy and we i.e. the secondary Steelmakers cannot think of competing against the primary producers. The agony is that it is not because of the size that we can’t compete. These small plants have equal chance of performing at par with the primary producers’ performance but on some grounds. Secondary producers should be given raw material at reasonable prices, which the primary players are enjoying.
Hoarding of Iron ore by mining companies and cutting production for increasing the prices.
The officials are of an opinion that mine lessees are not hoarding the material as of now. But then, looking at the current scenario when the operations in the mines were blocked, there was about 25 MnT of Iron ore lying at the stockyard. Perhaps there’s some holding because, if these were the non-marketable grade ore then why are they on sale? There’s a possibility of Iron ore hoarding and there must’ve been production cuts to push up the offers.
Such instances can be easily avoided in the future if there’s a threshold limit of ‘minimum production’. Suppose, a mine gets clearance for 10 MnT and it produces only 5 MnT, then I believe this act calls for a penalty. Miners should produce for what they’ve taken a clearance and if they’ve produced less, then isn’t penalty a fair idea? There are few miners in India owing to which, price regulation is easily possible and I think it is unfair.
Miners have a mining plan set for 5 years and all they need to do is to meet a certain fair percentage of production on an annual basis that must be reviewed on a quarterly basis. Now, when these miners cut production, it’s the State government who loses royalty. Royalty on Iron ore is 15% and therefore if the production is low, a penalty equivalent to 15% royalty can be charged to ‘minimum production’ limit. This procedure will have many benefits i.e. they’ll never lower production; similarly they’ll not abruptly produce. In addition, doing so will also unlock opportunities for a new miner, which is now captivated by the existing miners and beyond their capacity of mining.