• Restrictions on iron ore mining in some states
• High dependence on coking coal import
• High tax burden on raw material
• High transportation cost
• Lack of investment in R&D and innovation
India has the fourth largest reserve of iron ore. As per Indian Minerals Year book 2014 published by Indian Bureau of Mines, India has 28.5 Bt of iron ore resource. From 2000 to 2010, India has added 6.5 Bt of resources which translates into 650 mnt each year. Assuming we take the same rate of growth in resource addition, India’s total resource base will reach an estimated level of 40 Bt by 2030.
If we consider state-wise resources, at the current production rate if we can exploit the Magnetite resources efficiently our iron ore resource can last for 600 years on an average. Even if we consider only the Haematite resource, the average resource life for each state comes at 185 years at current mining rate.
The other aspect that has to be looked into for making steel “affordable” to common public, is to reduce the tax burden on the raw material (both Centre and State).
Coking coal is taxed at 2.5% Import duty, this coupled with the Rs 400 per ton of Clean Energy Cess imposes a substantial burden on the Coal cost for steel companies. Further to this, the cascading impact of taxes imposed on Iron Ore in the form of royalty, SPV Fund (in Karnataka), Goa Permanent Fund (in Goa) impose further cost on steel industry. The cumulative cost of these taxes is approx. Rs. 2,000 per ton (based on the fluctuating prices), almost equal to the conversion cost of RM to Hot metal in a blast furnace. These taxes are not permitted to be set off even under GST, thereby doubling the effective cost of making steel from the raw material. Removal of these costs alone will turn around a number of steel companies in the red currently.
Hence, Government policy should be more oriented towards making the steel industry inherently competitive by making them invest in R&D and less dependent on controlling domestic iron ore price. Investment in R&D by our steel producers is less than 0.5% of sales as compared to 1-1.5% by the Japanese and Korean steel makers.