Mixed bag for mining industry

Stock prices of metal and mining companies had run up ahead of Budget. While there was no blockbuster proposals, two announcements in the Budget can turn out be positive for the sector.

First is the assurance to resolve issues in the mining sector, by making required changes to the regulation. Also, the increased royalty payment to States can hurt near term profits, but can work out to be a long-term positive if it helps to expedite clearances. Data from the Ministry of Mines show that thousands of requests for new leases, renewals and prospecting licenses are pending with various State Governments.

Aluminium – positive Increasing the export duty on bauxite, a key raw material for producing aluminium, to 20 per cent (from 10 per cent) should help increase ore supply to local manufacturers. Higher local availability, which could lower input cost, will likely benefit Hindalco and others such as Sesa Sterlite, that have been operating at lower plant utilisations due to non-availability of raw material.

However, the proposal to double the clean energy cess, which will add nearly ₹3,300 crore to the Government’s coffers, will dampen the spirits of aluminium producers who are faced with lower realisations and rising input costs.

Still, the overall plans to increase power production and reduce cost of power through improved coal linkages may help lower overall power expenses in the long run, boosting prospects. The proposed tax break for constructing iron ore transportation slurry pipes should be an incentive.

Iron ore - negative However, the main expectation of lowering the 30 per cent export duty on iron ore fines was not addressed. This is a dampener for Sesa Sterlite, whose exports have been affected in the last few years. The budget did not mention the much anticipated proposal to open up the coal sector.

Coal - neutral While the power sector, which is most impacted by coal price and production, was offered some sops, there was no specific proposal that could directly benefit the coal miners. That said, proposals in the railway budget to speed up the construction of critical coal connectivity lines will benefit Coal India Ltd. The linkages will increase output from Mahanadi Coalfields in Odisha by an additional 11.2 mt per annum, helping CIL meet its target to tap 15 per cent more reserves every year.

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