Opinion

The surge in iron-ore, steel prices needs to be arrested

Biman Mukherji | Updated on January 11, 2021 Published on January 11, 2021

Apart from boosting domestic production of iron-ore, a coordinated effort from all the players concerned is needed

The world’s second-largest steel producer, India’s ambition of more than doubling its steel output capacity has started coming under pressure post the pandemic, and this could undermine the broader programme to ramp up infrastructure for an Atmanirbhar Bharat.

The reasons for this are not far to seek. Twin challenges have emerged at the same time — soaring iron-ore prices on Chinese exchanges, and an acute domestic shortage. International iron-ore prices, the most crucial ingredient in steel-making, leapt to a nine-year high last Friday, fuelled by speculative buying by Chinese traders on the Dalian Commodity Exchange, the No. 1 trading platform for the commodity.

Since China is the world’s largest steel producer — commanding around half of the global markets — the price of the mineral has shot up worldwide. The problem is being exacerbated in India by a crippling shortfall in the domestic market in the wake of supply tightness in Odisha, which is currently the largest supplier. Domestic production of the ore nearly halved between April and September as only 12 merchant mines in Odisha are currently operational while as many as 20 are shut. Many iron-ore mines that were to be re-auctioned or restarted have not happened.

At a webinar held last week, industry players urged the Odisha as well as the Central governments to resolve these bottlenecks, but no clear answers emerged.

Prices surge

Iron-ore prices have shot up by as much as 50 per cent since March under such tough market conditions, thereby putting pressure on Indian steel prices. The rise in prices has not escaped the government’s eye either. At a recent industry conference, Transport Minister Nitin Gadkari said that he had drawn Prime Minister Narendra Modi’s attention to a 55 per cent hike in steel prices in the past six months.

Clearly, the steel and iron-ore dynamics are hurting India. On one hand, domestic steel players have called for a ban on iron-ore exports to China, which have been taking place from the eastern shores in the absence of Goa and Karnataka. Miners have also said that the current shortfall can be easily overcome by making use of unutilised stocks lying at mine heads in eastern States. Miners contend that domestic steel companies are picky buyers and chose to buy 62 per cent grade iron-ore instead of the lower grades that are usually exported.

Clearly, the overall situation is untenable. India has to increase its steel production capacity by as much as 160 million tonnes in less than a decade if it were to realise its target of 300 million tonnes production capacity by 2030.

Funamental material

While Prime Minister Modi has outlined a vision for boosting the manufacturing sector and announced production-linked incentives for as many as 10 sectors towards the objective, there is no getting away from the fact that steel is the most fundamental material that will be needed to drive forward the vision.

Whether it be mass production of mobile phones or developing the automobiles and automobile-parts manufacturing into a global hub, everything will require massive amounts of steel. Blessed with abundant reserves of iron-ore, India fortunately has the raw material at hand to take on the world in manufacturing.

Odisha and Jharkhand are so rich in reserves of iron-ore that mining experts have often called them as potentially the next Australia. The geological structure of the Indian subcontinent is similar and therefore it’s not surprising that the country has such wealth below ground. Until about a decade ago, mineral exports from Goa and Karnataka used to contribute substantially to world trade, until the issues over licensing and environmental degradation dried up these sources of revenue.

With one of the worst-ever economic contractions in the post-pandemic era now staring at India, voices are again emerging in support of reviving the mining and metals industry, which can easily contribute substantially to the country’s GDP.

Win-win blueprint

The realisation of the country’s mining and metals production will however require a coordinated effort from all the players. In other words, a win-win blueprint is the crying need of the hour.

However, in the past, policymakers and industry players have tended to look at all sections as disparate pieces. The approach has broadly focussed on protecting their own turf, whether its mining or metals. The narrow approach has been the bane of the industry. What is needed is a broad vision for the country wherein each player plays to its strength while supporting the other.

The reality is that only certain companies possess captive iron-ore mines while the majority, especially the smaller players including sponge iron mills, will remain dependent on merchant miners. A skewed approach will lead to an eventual shutdown of many sections of the mines and metals industry.

Can India afford such an approach when livelihoods are already at stake following one of the worst-ever economic crises?

Policymakers will have their task cut out in bringing together all sections of the industry and putting together a common vision and approach. But in its absence India will always remain confused by the mystery of soaring steel and iron-ore prices. All sections of the economy are being affected by the situation though the solution remains very much at hand. It is time therefore to grab the proverbial bull by the horns.

The writer is a former journalist and an expert on minerals and metals

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on January 11, 2021
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.