Iron ore shortage looming large, may push prices from April 2020

Suresh P Iyengar Mumbai | Updated on December 10, 2019 Published on December 10, 2019

Representative image   -  K_BHAGYA PRAKASH

Steel price hike may not add to steel companies’ profit

Iron prices are set to increase from March 2020 as the Odisha government annuls three rounds of bids called in to auction 20 iron mines whose leases are expiring in March.

The fresh bid documents were released on December 6 with original timelines maintained.

In an attempt to stop cornering of mines by one single bidder, the Government has banned multiple bids from the same company, including its affiliates.

The Government had invited bids for auctioning iron ore mines in three rounds, putting up 29 blocks under the hammer, 9 of which were virgin mines. However, after opening the technical bids, the entire process was abandoned.

New bids have, now, been invited for 20 mines, leaving behind the 9 virgin mines that were part of phase-II of bids.

This apart, the Ministry of Environment, Forest and Climate Change has issued a notification mandating fresh Environment Clearance for mines being auctioned, citing the Supreme Court judgment in the Goa Foundation case.

Vishal Chandak, Research Analyst, Emkay Global said with about 20 merchant mine leases expiring by March 2020, there will be a shortage of supplies of iron ore from April 2020 as five of the six mine leases that are expiring will not feature in the auction already announced.

The total production of the five mines that will be impacted is about 60 million tonnes and EC clearance has to be sought for production of about 80 million tonnes, he said.

The rising steel prices make a case for higher iron ore prices and with the likelihood of disruption post-March in the availability of iron ore from Odisha.

The execution of the mining leases will take six months from the date of issuance of the letter of intent by the State government.

The Letter of Intent by the Government should ideally be issued by March 2020, so that the mining leases can be issued in September 2020.

Ideally, it takes at least three years to get regulatory approvals from the date of issuance of the Letter of Intent.

However, NMDC would be the major beneficiary of the rising iron ore prices as it will restart production from its Donimalai iron ore mine in Karnataka.

The lease of Donimalai to NMDC was suspended after the Karnataka government demanded sharp hike in royalty.

Later, the Central Government amended the Mines and Mineral Development Act to mandatorily renew leases owned by public sector.

Iron ore production of NMDC in first two months of December quarter has already increased to 5.4 million tonnes against 5.1 mt logged in September quarter.

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Published on December 10, 2019
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